Ares Management (NYSE:ARES) Will Pay A Larger Dividend Than Last Year At $0.77

Ares Management Corporation (NYSE:ARES) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to $0.77. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

See our latest analysis for Ares Management

Ares Management's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

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. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was $0.72, compared to the most recent full-year payment of $3.08. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. 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.

Ares Management Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Ares Management has seen EPS rising for the last five years, at 16% 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.

Ares Management's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Ares Management has 4 warning signs (and 2 which are a bit concerning) we think you should know about. Is Ares Management not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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