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

ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend of $0.05 per share on the 30th of November. The dividend yield will be 6.0% based on this payment which is still above the industry average.

View our latest analysis for ARC Document Solutions

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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 72% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next 12 months is set to see EPS grow by 13.9%. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to the balance sheet.

ARC Document Solutions' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2019, the dividend has gone from $0.04 total annually to $0.20. This implies that the company grew its distributions at a yearly rate of about 50% 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that ARC Document Solutions has been growing its earnings per share at 41% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which ARC Document Solutions hasn't been doing.

We Really Like ARC Document Solutions' Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for ARC Document Solutions that you should be aware of before investing. Is ARC Document Solutions not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.