ARC Document Solutions (NYSE:ARC) Is Paying Out A Dividend Of $0.05

ARC Document Solutions, Inc.'s (NYSE:ARC) investors are due to receive a payment of $0.05 per share on 30th of August. This makes the dividend yield 7.8%, which will augment investor returns quite nicely.

See our latest analysis for ARC Document Solutions

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

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, ARC Document Solutions' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 23.8%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 120% over the next year.

ARC Document Solutions' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of $0.04 in 2020 to the most recent total annual payment of $0.20. This means that it has been growing its distributions at 50% per annum over that time. 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 May Find It Hard To Grow The Dividend

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. ARC Document Solutions hasn't seen much change in its earnings per share over the last five years. The earnings growth is anaemic, and the company is paying out 97% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Our Thoughts On ARC Document Solutions' Dividend

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 payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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.

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