Four Days Left To Buy G8 Education Limited (ASX:GEM) Before The Ex-Dividend Date

Readers hoping to buy G8 Education Limited (ASX:GEM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase G8 Education's shares before the 12th of September to receive the dividend, which will be paid on the 3rd of October.

The company's next dividend payment will be AU$0.02 per share, and in the last 12 months, the company paid a total of AU$0.055 per share. Looking at the last 12 months of distributions, G8 Education has a trailing yield of approximately 6.7% on its current stock price of AU$0.815. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. G8 Education is paying out an acceptable 62% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether G8 Education generated enough free cash flow to afford its dividend. Fortunately, it paid out only 29% of its free cash flow in the past year.

It's positive to see that G8 Education'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.

View our latest analysis for G8 Education

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about G8 Education's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. G8 Education's dividend payments per share have declined at 14% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Should investors buy G8 Education for the upcoming dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, G8 Education doesn't stand out from a dividend perspective. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with G8 Education, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for G8 Education you should be aware of.

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.