It looks like Arko Corp. (NASDAQ:ARKO) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Arko's shares on or after the 19th of November, you won't be eligible to receive the dividend, when it is paid on the 3rd of December.
The company's next dividend payment will be US$0.03 per share. Last year, in total, the company distributed US$0.12 to shareholders. Looking at the last 12 months of distributions, Arko has a trailing yield of approximately 1.8% on its current stock price of US$6.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Arko can afford its dividend, and if the dividend could grow.
See our latest analysis for Arko
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 14% of its free cash flow in the last year.
It's positive to see that Arko's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Arko's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last three years, Arko has lifted its dividend by approximately 14% a year on average.
The Bottom Line
Is Arko an attractive dividend stock, or better left on the shelf? We're not enthused by the flat earnings per share, although at least the company's payout ratio is within reasonable bounds. Additionally, it paid out a lower percentage of its free cash flow, so at least it generated more cash than it spent on dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
If you want to look further into Arko, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 2 warning signs for Arko (of which 1 doesn't sit too well with us!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NasdaqCM:ARKO
Moderate growth potential second-rate dividend payer.
