Aramark's (NYSE:ARMK) investors are due to receive a payment of US$0.11 per share on 7th of December. This means the annual payment will be 1.2% of the current stock price, which is lower than the industry average.
Aramark Might Find It Hard To Continue The Dividend
Even a low dividend yield can be attractive if it is sustained for years on end. While Aramark is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Looking forward, earnings per share could 44.0% over the next year if the trend of the last few years can't be broken. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Aramark Doesn't Have A Long Payment History
It is great to see that Aramark has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from US$0.30 in 2013 to the most recent annual payment of US$0.44. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 44% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Aramark's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Aramark's 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. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Aramark that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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