SLM (NASDAQ:SLM) Is Due To Pay A Dividend Of $0.11

SLM Corporation (NASDAQ:SLM) has announced that it will pay a dividend of $0.11 per share on the 15th of March. This means the dividend yield will be fairly typical at 2.2%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that SLM's stock price has increased by 55% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for SLM

SLM's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. SLM is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 35.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

SLM Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $0.12 in 2019 to the most recent total annual payment of $0.44. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. SLM has seen EPS rising for the last five years, at 19% per annum. SLM definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for SLM (of which 1 is a bit unpleasant!) you should know about. Is SLM 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.