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Is Arrow Global Group PLC (LON:ARW) A Smart Choice For Dividend Investors?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Arrow Global Group PLC (LON:ARW) has paid a dividend to shareholders. Today it yields 5.8%. Let’s dig deeper into whether Arrow Global Group should have a place in your portfolio.

See our latest analysis for Arrow Global Group

5 checks you should do on a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

  • Is it the top 25% annual dividend yield payer?

  • Does it consistently pay out dividends without missing a payment of significantly cutting payout?

  • Has dividend per share amount increased over the past?

  • Is is able to pay the current rate of dividends from its earnings?

  • Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

LSE:ARW Historical Dividend Yield October 19th 18
LSE:ARW Historical Dividend Yield October 19th 18

Does Arrow Global Group pass our checks?

The company currently pays out 47% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect ARW’s payout to fall to 35% of its earnings, which leads to a dividend yield of around 7.1%. However, EPS should increase to £0.35, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Arrow Global Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Arrow Global Group has a yield of 5.8%, which is high for Consumer Finance stocks.

Next Steps:

With this in mind, I definitely rank Arrow Global Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important factors you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for ARW’s future growth? Take a look at our free research report of analyst consensus for ARW’s outlook.

  2. Valuation: What is ARW worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ARW is currently mispriced by the market.

  3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.