Argan Inc (NYSE:AGX) announced a dividend of $0.25
Argan, Inc. (NYSE:AGX) will pay a dividend of $0.25 on July 29. This brings the dividend yield to 2.6%, which will boost returns for investors quite nicely.
Argan payout has strong revenue coverage
If the payouts aren’t sustainable, a high return for a few years won’t matter much. Prior to this announcement, Argan’s earnings easily covered the dividend, but free cash flow was negative. Since a dividend means the company pays out money to investors, this could prove to be a problem in the future.
Over the next year, EPS is expected to increase by 24.6%. Assuming the dividend continues on recent trends, we think the payout ratio could be 34% by next year, which is in a fairly sustainable range.
Argan has a solid track record
The company has a long history of paying stable dividends. The dividend increased from US$0.60 in 2012 to the last annual payment of US$1.00. This equates to a compound annual growth rate (CAGR) of approximately 5.2% per year during this period. Companies like this can be very valuable in the long run, if the decent growth rate can be maintained.
The dividend has limited growth potential
Some investors will be eager to buy some of the company’s stock based on its dividend history. Let’s not jump to conclusions, because things might not be as good as they seem on the surface. Argan’s EPS has fallen approximately 14% per year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull itself out of the dip it’s been in. On the bright side, earnings should gain traction over the next year, but until that turns into a pattern, we won’t feel too comfortable.
Overall, we don’t think this company is generating a great dividend, even though the dividend hasn’t been cut this year. While Argan earns enough to cover payments, cash flow is lacking. This company is not in the high end of income providing stocks.
Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. For example, we identified 1 warning sign for the argan tree which you should be aware of before investing. Is Argan not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.
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