Stock Analysis

It Might Not Be A Great Idea To Buy Aramark (NYSE:ARMK) For Its Next Dividend

  •  Updated
NYSE:ARMK
Source: Shutterstock

Readers hoping to buy Aramark (NYSE:ARMK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 16th of February will not receive this dividend, which will be paid on the 3rd of March.

Aramark's upcoming dividend is US$0.11 a share, following on from the last 12 months, when the company distributed a total of US$0.44 per share to shareholders. Looking at the last 12 months of distributions, Aramark has a trailing yield of approximately 1.2% on its current stock price of $36.73. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Aramark has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Aramark

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Aramark lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:ARMK Historic Dividend February 11th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Aramark reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, Aramark has lifted its dividend by approximately 5.6% a year on average.

We update our analysis on Aramark every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has Aramark got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Aramark.

Although, if you're still interested in Aramark and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 1 warning sign for Aramark that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you’re looking to trade Aramark, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


What are the risks and opportunities for Aramark?

Aramark provides food, facilities, and uniform services to education, healthcare, business and industry, sports, leisure, and corrections clients in the United States and internationally.

View Full Analysis

Rewards

  • Earnings are forecast to grow 24.68% per year

  • Earnings grew by 613.9% over the past year

Risks

  • Interest payments are not well covered by earnings

  • Large one-off items impacting financial results

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report