Scholastic's (NASDAQ:SCHL) Dividend Will Be $0.20

The board of Scholastic Corporation (NASDAQ:SCHL) has announced that it will pay a dividend on the 15th of December, with investors receiving $0.20 per share. This means the dividend yield will be fairly typical at 2.8%.

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 Scholastic's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Scholastic's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Scholastic's Could Struggle to Maintain Dividend Payments In The Future

Scholastic's Future Dividends May Potentially Be At Risk

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even though Scholastic isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS is forecast to expand by 121.4%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for Scholastic

Scholastic Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.60 in 2015, and the most recent fiscal year payment was $0.80. This means that it has been growing its distributions at 2.9% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Company Could Face Some Challenges Growing The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Scholastic has grown earnings per share at 16% per year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Scholastic is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Scholastic 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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