Strategic Education (NASDAQ:STRA) Has Re-Affirmed Its Dividend Of US$0.60

The board of Strategic Education, Inc. (NASDAQ:STRA) has announced that it will pay a dividend on the 13th of September, with investors receiving US$0.60 per share. This makes the dividend yield 3.0%, which will augment investor returns quite nicely.

Check out our latest analysis for Strategic Education

Strategic Education's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 123% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 52%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 93.5% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 84%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was US$4.00 in 2011, and the most recent fiscal year payment was US$2.40. The dividend has shrunk at around 5.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 11% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The company has also been raising capital by issuing stock equal to 11% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Strategic Education's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. This company is not in the top tier of income providing stocks.

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. As an example, we've identified 4 warning signs for Strategic Education that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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