Should You Buy Arko Corp. (NASDAQ:ARKO) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Arko Corp. (NASDAQ:ARKO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the 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 Arko’s shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 1st of June.

The company’s upcoming dividend is US$0.03 a share, following on from the last 12 months, when the company distributed a total of US$0.12 per share to shareholders. Calculating the last year’s worth of payments shows that Arko has a trailing yield of 1.8% on the current share price of $6.83. If you buy this business for its dividend, you should have an idea of whether Arko’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

View our latest analysis for Arko

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Arko paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 19% 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.

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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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Arko has grown its earnings rapidly, up 56% a year for the past five years. Arko looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Given that Arko has only been paying a dividend for a year, there’s not much of a past history to draw insight from.

The Bottom Line

Has Arko got what it takes to maintain its dividend payments? Arko has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Arko 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 Arko is facing. To that end, you should learn about the 2 warning signs we’ve spotted with Arko (including 1 which makes us a bit uncomfortable).

If you’re in the market for strong dividend payers, we recommend checking 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.

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