Aramark (NYSE:ARMK) will pay a dividend of US$0.11 on the 8th of September. This means the annual payment will be 1.2% of the current stock price, which is lower than the industry average.
Aramark's Distributions May Be Difficult To Sustain
If it is predictable over a long period, even low dividend yields can be attractive. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.
Recent, EPS has fallen by 40.2%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Aramark Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. 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. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Aramark's earnings per share has shrunk at 40% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Aramark's Dividend Doesn't Look Great
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Aramark that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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Aramark provides food, facilities, and uniform services to education, healthcare, business and industry, sports, leisure, and corrections clients in the United States and internationally.
Reasonable growth potential with questionable track record.