The Aaron's Company, Inc.'s (NYSE:AAN) investors are due to receive a payment of $0.125 per share on 3rd of July. Based on this payment, the dividend yield on the company's stock will be 6.7%, which is an attractive boost to shareholder returns.
See our latest analysis for Aaron's Company
Aaron's Company Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Aaron's Company is unprofitable despite paying a dividend, and it is paying out 266% of its free cash flow. These payout levels would generally be quite difficult to keep up.
Over the next year, EPS is forecast to expand by 92.2%. 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 Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.50. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Aaron's Company to be a consistent dividend paying stock.
The Company Could Face Some Challenges Growing The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Aaron's Company has grown earnings per share at 20% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Aaron's Company that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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 NYSE:AAN
Flawless balance sheet and undervalued.
