Yahoo Finance Income Investors Should Know That Arch Resources, Inc. (NYSE:ARCH) Goes Ex-Dividend Soon
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Arch Resources, Inc. (NYSE:ARCH) is about to go ex-dividend in just four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Arch Resources' shares before the 31st of May in order to be eligible for the dividend, which will be paid on the 14th of June.
The company's upcoming dividend is US$1.11 a share, following on from the last 12 months, when the company distributed a total of US$7.86 per share to shareholders. Looking at the last 12 months of distributions, Arch Resources has a trailing yield of approximately 4.6% on its current stock price of US$170.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Arch Resources
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Arch Resources paid out 52% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Arch Resources earnings per share are up 2.2% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, Arch Resources has lifted its dividend by approximately 28% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Is Arch Resources an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Arch Resources paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 3 warning signs with Arch Resources and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking 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.
