Strategic Education (NASDAQ:STRA) Will Pay A Dividend Of US$0.60

By
Simply Wall St
Published
March 01, 2022
NasdaqGS:STRA
Source: Shutterstock

Strategic Education, Inc.'s (NASDAQ:STRA) investors are due to receive a payment of US$0.60 per share on 14th of March. The dividend yield will be 4.1% based on this payment which is still above the industry average.

View our latest analysis for Strategic Education

Strategic Education Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 104% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 45%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 21.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 111%, which is a bit high and could start applying pressure to the balance sheet.

historic-dividend
NasdaqGS:STRA Historic Dividend March 1st 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was US$4.00, compared to the most recent full-year payment of US$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.

Dividend Growth Is Doubtful

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 has seen earnings per share falling at 7.2% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

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. 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. We don't think Strategic Education is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Strategic Education that investors need to be conscious of moving forward. 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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