ARC Document Solutions (NYSE:ARC) Has Announced A Dividend Of $0.05

The board of ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend of $0.05 per share on the 31st of May. This means the annual payment is 7.6% of the current stock price, which is above the average for the industry.

Check out our latest analysis for ARC Document Solutions

ARC Document Solutions' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 103% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 33%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 93.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 85%, which is on the higher side, but certainly still feasible.

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ARC Document Solutions' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2020, the annual payment back then was $0.04, compared to the most recent full-year payment of $0.20. This means that it has been growing its distributions at 50% per annum over that time. ARC Document Solutions 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.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, ARC Document Solutions' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

ARC Document Solutions' 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. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for ARC Document Solutions that investors should take into consideration. Is ARC Document Solutions not quite the opportunity you were looking for? Why not check out 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.