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Should You Buy Arvida Group Limited (NZSE:ARV) For Its Upcoming Dividend?

It looks like Arvida Group Limited (NZSE:ARV) is about to go ex-dividend in the next three days. Investors can purchase shares before the 7th of September in order to be eligible for this dividend, which will be paid on the 16th of September.

Arvida Group's upcoming dividend is NZ$0.012 a share, following on from the last 12 months, when the company distributed a total of NZ$0.058 per share to shareholders. Last year's total dividend payments show that Arvida Group has a trailing yield of 3.6% on the current share price of NZ$1.62. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Arvida Group

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Arvida Group is paying out an acceptable 69% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 33% of its free cash flow in the past 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Arvida Group's earnings per share have been growing at 12% a year for the past five years. Arvida Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Arvida Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Arvida Group has delivered 41% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Has Arvida Group got what it takes to maintain its dividend payments? Arvida Group's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Arvida Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Arvida Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 5 warning signs for Arvida Group that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

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