Strategic Education, Inc. (NASDAQ:STRA) will pay a dividend of $0.60 on the 5th of December. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.
Strategic Education Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Strategic Education's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to fall by 10.7% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 159%, which could put the dividend under pressure if earnings don't start to improve.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $4.00 in 2012, and the most recent fiscal year payment was $2.40. This works out to be a decline of approximately 5.0% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Strategic Education's EPS has fallen by approximately 11% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Strategic Education's payments, as there could be some issues with sustaining them into the future. 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 would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Strategic Education that investors should know about before committing capital to this stock. 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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Strategic Education, Inc., through its subsidiaries, provides education services through campus-based and online post-secondary education, and programs to develop job-ready skills.
Solid track record with excellent balance sheet.