Archrock (NYSE:AROC) Has Announced That It Will Be Increasing Its Dividend To $0.155

Archrock, Inc. (NYSE:AROC) will increase its dividend from last year's comparable payment on the 15th of August to $0.155. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.

See our latest analysis for Archrock

Archrock Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 158% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 36.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 123%, which is a bit high and could start applying pressure to the balance sheet.

Archrock's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from $0.60 total annually to $0.62. Its dividends have grown at less than 1% per annum over this time frame. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Archrock May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Archrock's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

We're Not Big Fans Of Archrock's Dividend

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

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 Archrock you should be aware of, and 2 of them make us uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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