Stock Analysis

Ares Management (NYSE:ARES) Is Increasing Its Dividend To US$0.61

  •  Updated
Source: Shutterstock

Ares Management Corporation's (NYSE:ARES) dividend will be increasing to US$0.61 on 31st of March. The announced payment will take the dividend yield to 2.5%, which is in line with the average for the industry.

See our latest analysis for Ares Management

Ares Management Is Paying Out More Than It Is Earning

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Ares Management's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

The next 12 months is set to see EPS grow by 33.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 128%, which probably can't continue putting some pressure on the balance sheet.

NYSE:ARES Historic Dividend February 14th 2022

Ares Management's Dividend Has Lacked Consistency

It's comforting to see that Ares Management 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 2014, the first annual payment was US$0.72, compared to the most recent full-year payment of US$2.44. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

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. Although it's important to note that Ares Management's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Ares Management's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Ares Management is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Ares Management has 4 warning signs (and 1 which is a bit concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

Valuation is complex, but we're helping make it simple.

Find out whether Ares Management is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis