Should Archrock Inc (NYSE:AROC) Be Part Of Your Portfolio?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Archrock Inc (NYSE:AROC) has returned to shareholders over the past 4 years, an average dividend yield of 4.00% annually. Should it have a place in your portfolio? Let’s take a look at Archrock in more detail. See our latest analysis for Archrock

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

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

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will it have the ability to keep paying its dividends going forward?

Does Archrock pass our checks?

The current trailing twelve-month payout ratio for AROC is 127.70%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a payout ratio of 122.57%, leading to a dividend yield of 4.81%. Moreover, EPS should increase to $0.45.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Archrock 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, Archrock generates a yield of 3.97%, which is high for Energy Services stocks but still below the market’s top dividend payers.

Next Steps:

After digging a little deeper into Archrock’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three key aspects you should further research:

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

2. Valuation: What is AROC 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 AROC is currently mispriced by the market.

3. 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 pass 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.