Aramark (NYSE:ARMK) has announced that it will pay a dividend of US$0.11 per share on the 2nd of March. Including this payment, the dividend yield on the stock will be 1.2%, which is a modest boost for shareholders’ returns.
Check out our latest analysis for Aramark
Aramark Might Find It Hard To Continue The Dividend
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. While Aramark is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Recent, EPS has fallen by 44.0%, so this could continue over the next year. This means that the company won’t turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Aramark Is Still Building Its Track Record
The dividend’s track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from US$0.30 in 2014 to the most recent annual payment of US$0.44. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. We like that the dividend hasn’t been shrinking. However we’re conscious that the company hasn’t got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, things aren’t all that rosy. Aramark’s EPS has fallen by approximately 44% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about Aramark’s payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. We don’t think Aramark is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for Aramark that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing 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.