Yahoo Finance Is It Smart To Buy ARC Resources Ltd. (TSE:ARX) Before It Goes Ex-Dividend?
It looks like ARC Resources Ltd. (TSE:ARX) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, ARC Resources investors that purchase the stock on or after the 28th of September will not receive the dividend, which will be paid on the 17th of October.
The company's next dividend payment will be CA$0.12 per share, and in the last 12 months, the company paid a total of CA$0.48 per share. Calculating the last year's worth of payments shows that ARC Resources has a trailing yield of 2.9% on the current share price of CA$16.34. If you buy this business for its dividend, you should have an idea of whether ARC Resources's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for ARC Resources
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ARC Resources paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether ARC Resources generated enough free cash flow to afford its dividend. The good news is it paid out just 13% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see ARC Resources has grown its earnings rapidly, up 31% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, ARC Resources looks like a promising growth company.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ARC Resources has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. ARC Resources is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Has ARC Resources got what it takes to maintain its dividend payments? ARC Resources has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. ARC Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks ARC Resources is facing. In terms of investment risks, we've identified 2 warning signs with ARC Resources and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
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