Readers hoping to buy Aramark (NYSE:ARMK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Therefore, if you purchase Aramark's shares on or after the 14th of May, you won't be eligible to receive the dividend, when it is paid on the 28th of May.

The company's next dividend payment will be US$0.105 per share, and in the last 12 months, the company paid a total of US$0.42 per share. Based on the last year's worth of payments, Aramark stock has a trailing yield of around 1.1% on the current share price of US$38.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. That's why it's good to see Aramark paying out a modest 31% of its earnings. A useful secondary check can be to evaluate whether Aramark generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.

It's positive to see that Aramark's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Aramark

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.NYSE:ARMK Historic Dividend May 10th 2025

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Aramark's earnings per share have dropped 6.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

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The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Aramark has increased its dividend at approximately 3.4% a year on average.

To Sum It Up

Is Aramark an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Aramark from a dividend perspective.

On that note, you'll want to research what risks Aramark is facing. Every company has risks, and we've spotted 2 warning signs for Aramark (of which 1 is potentially serious!) you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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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