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

The board of ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend on the 29th of November, with investors receiving $0.05 per share. Based on this payment, the dividend yield on the company's stock will be 6.0%, which is an attractive boost to shareholder returns.

Check out our latest analysis for ARC Document Solutions

ARC Document Solutions Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 107% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 45%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 29.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 124%, which probably can't continue without putting some pressure on the balance sheet.

ARC Document Solutions' Dividend Has Lacked Consistency

It's comforting to see that ARC Document Solutions has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the annual payment back then was $0.04, compared to the most recent full-year payment of $0.20. This works out to be a compound annual growth rate (CAGR) of approximately 38% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

ARC Document Solutions May Have Challenges Growing 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 has seen EPS rising for the last five years, at 9.2% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think ARC Document Solutions is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 2 warning signs for ARC Document Solutions that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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