Arcos Dorados Holdings' (NYSE:ARCO) Dividend Will Be $0.06
Arcos Dorados Holdings Inc. (NYSE:ARCO) will pay a dividend of $0.06 per share on December 26, yielding 3.5%. While earnings cover the dividend, concerns arise from negative free cash flows. EPS is projected to grow by 43.6% next year, potentially leading to a sustainable payout ratio of 28%. Despite a history of dividend cuts, EPS has risen 48% annually over five years. However, the current dividend level may be unsustainable due to minimal cash reserves, making it less attractive for income-focused investors.
Arcos Dorados Holdings Inc. (NYSE:ARCO) has announced that it will pay a dividend of $0.06 per share on the 26th of December. Based on this payment, the dividend yield on the company's stock will be 3.5%, which is an attractive boost to shareholder returns.
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Arcos Dorados Holdings' Future Dividend Projections Appear Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Arcos Dorados Holdings was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 43.6%. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.
See our latest analysis for Arcos Dorados Holdings
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, 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. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Looks Likely To Grow
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. Arcos Dorados Holdings has seen EPS rising for the last five years, at 48% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Our Thoughts On Arcos Dorados Holdings' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Arcos Dorados Holdings 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Arcos Dorados Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
