Yahoo Finance Arcos Dorados Holdings (NYSE:ARCO) Is Paying Out A Dividend Of $0.06
Arcos Dorados Holdings Inc. (NYSE:ARCO) has announced that it will pay a dividend of $0.06 per share on the 28th of June. This means the dividend yield will be fairly typical at 2.2%.
View our latest analysis for Arcos Dorados Holdings
Arcos Dorados Holdings' Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Arcos Dorados Holdings was paying a whopping 231% as a dividend, but this only made up 22% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
The next year is set to see EPS grow by 44.7%. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $0.238 total annually to $0.24. Dividend payments have grown at less than 1% a year over this period. 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.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Arcos Dorados Holdings has impressed us by growing EPS at 37% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Our Thoughts On Arcos Dorados Holdings' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Arcos Dorados Holdings' payments, as there could be some issues with sustaining them into the future. While Arcos Dorados Holdings is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Arcos Dorados Holdings that investors should take into consideration. 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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