Overseas Education's (SGX:RQ1) Dividend Will Be Reduced To SGD0.011

Overseas Education Limited (SGX:RQ1) is reducing its dividend to SGD0.011 on the 19th of Maywhich is 15% less than last year's comparable payment of SGD0.013. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Overseas Education

Overseas Education's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 87% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 3.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 84%, which is definitely on the higher side.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SGD0.0275 in 2013, and the most recent fiscal year payment was SGD0.011. Doing the maths, this is a decline of about 8.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Overseas Education May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Overseas Education's EPS has declined at around 3.3% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Overseas Education's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Overseas Education you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.