Educational Development (NASDAQ:EDUC) Has Announced A Dividend Of US$0.10

By
Simply Wall St
Published
October 09, 2021
NasdaqGM:EDUC
Source: Shutterstock

The board of Educational Development Corporation (NASDAQ:EDUC) has announced that it will pay a dividend of US$0.10 per share on the 9th of December. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

View our latest analysis for Educational Development

Educational Development'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, Educational Development's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 39.6% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

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NasdaqGM:EDUC Historic Dividend October 10th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was US$0.30, compared to the most recent full-year payment of US$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Educational Development has been growing its earnings per share at 40% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Educational Development's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 6 warning signs for Educational Development you should be aware of, and 2 of them are a bit concerning. We have also put together a list of global stocks with a solid dividend.

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