ARC Document Solutions (NYSE:ARC) Is Due To Pay A Dividend Of $0.05

The board of ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend on the 31st of August, with investors receiving $0.05 per share. This makes the dividend yield 6.4%, which will augment investor returns quite nicely.

View our latest analysis for ARC Document Solutions

ARC Document Solutions Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, ARC Document Solutions was paying out 77% of earnings, but a comparatively small 28% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 15.2% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 122%, which is a bit high and could start applying pressure to the balance sheet.

ARC Document Solutions' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2020, the annual payment back then was $0.04, compared to the most recent full-year payment of $0.20. This implies that the company grew its distributions at a yearly rate of about 71% over that duration. ARC Document Solutions has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

ARC Document Solutions Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that ARC Document Solutions has been growing its earnings per share at 51% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why ARC Document Solutions is not retaining those earnings to reinvest in growth.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ARC Document Solutions' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for ARC Document Solutions that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.