Aaron's Company (NYSE:AAN) Has Affirmed Its Dividend Of $0.125

The Aaron's Company, Inc. (NYSE:AAN) will pay a dividend of $0.125 on the 3rd of October. The dividend yield will be 5.0% based on this payment which is still above the industry average.

See our latest analysis for Aaron's Company

Aaron's Company Might Find It Hard To Continue The Dividend

A big dividend yield for a few years doesn't mean much if it can't be sustained. Despite not generating a profit, Aaron's Company is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS is forecast to expand by 85.3%. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Aaron's Company Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 4 years was $0.40 in 2020, and the most recent fiscal year payment was $0.50. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. Aaron's Company has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Company Could Face Some Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Aaron's Company has impressed us by growing EPS at 12% per year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.

Aaron's Company's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Aaron's Company that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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