Archrock (NYSE:AROC) Is Increasing Its Dividend To $0.15

The board of Archrock, Inc. (NYSE:AROC) has announced that the dividend on 14th of February will be increased to $0.15, which will be 3.4% higher than last year's payment of $0.145 which covered the same period. This will take the annual payment to 6.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Archrock

Archrock Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Archrock was paying out 231% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Earnings per share is forecast to rise by 83.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 134%, which probably can't continue without putting some pressure on the balance sheet.

Archrock's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was $0.60, compared to the most recent full-year payment of $0.58. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

Archrock May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Archrock's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Archrock's Dividend Doesn't Look Great

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Archrock you should be aware of, and 2 of them don't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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