Embark Early Education (ASX:EVO) Will Pay A Dividend Of A$0.015

Embark Early Education Limited (ASX:EVO) has announced that it will pay a dividend of A$0.015 per share on the 17th of December. This makes the dividend yield 9.0%, which will augment investor returns quite nicely.

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Embark Early Education's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Embark Early Education's dividend made up quite a large proportion of earnings but only 65% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 68.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Check out our latest analysis for Embark Early Education

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was A$0.344, compared to the most recent full-year payment of A$0.06. This works out to a decline of approximately 83% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see that Embark Early Education has been growing its earnings per share at 48% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Embark Early Education is not retaining those earnings to reinvest in growth.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Embark Early Education is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Embark Early Education that investors need to be conscious of moving forward. 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.