Overseas Education (SGX:RQ1) Will Pay A Larger Dividend Than Last Year At SGD0.013

The board of Overseas Education Limited (SGX:RQ1) has announced that it will be increasing its dividend by 18% on the 10th of May to SGD0.013, up from last year's comparable payment of SGD0.011. This takes the dividend yield to 6.2%, which shareholders will be pleased with.

Check out our latest analysis for Overseas Education

Overseas Education's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Overseas Education's dividend made up quite a large proportion of earnings but only 17% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to fall by 0.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 76%, which is definitely on the higher side.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SGD0.0275 in 2014 to the most recent total annual payment of SGD0.013. The dividend has shrunk at around 7.2% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Overseas Education May Find It Hard To Grow The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. However, Overseas Education's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Overseas Education's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Overseas Education has 3 warning signs (and 1 which can't be ignored) we think you should know about. Is Overseas Education not quite the opportunity you were looking for? Why not check out 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.