The board of ARB Corporation Limited (ASX:ARB) has announced that it will be paying its dividend of A$0.35 on the 18th of October, an increased payment from last year's comparable dividend. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for ARB

ARB's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend was quite comfortably covered by ARB's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 29.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.

ARB Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was A$0.285, compared to the most recent full-year payment of A$0.69. This means that it has been growing its distributions at 9.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that ARB has grown earnings per share at 12% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On ARB's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 14 ARB analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is ARB not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.