Ares Management's (NYSE:ARES) Upcoming Dividend Will Be Larger Than Last Year's

The board of Ares Management Corporation (NYSE:ARES) has announced that it will be paying its dividend of $0.77 on the 31st of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.6%, providing a nice boost to shareholder returns.

See our latest analysis for Ares Management

Ares Management's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Ares Management was paying out 256% of what it was earning, and not generating any free cash flows either. 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.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Ares Management's Dividend Has Lacked Consistency

Ares Management has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of $0.72 in 2015 to the most recent total annual payment of $3.08. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Ares Management has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

There Isn't Much Room To Grow The 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 impressed us by growing EPS at 8.8% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Ares Management you should be aware of, and 2 of them are a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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