Only 4 Days Left To Cash In On G8 Education Limited's (ASX:GEM) Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see G8 Education Limited (ASX:GEM) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 2nd of March to receive the dividend, which will be paid on the 6th of April.
G8 Education's next dividend payment will be AU$0.06 per share, and in the last 12 months, the company paid a total of AU$0.11 per share. Based on the last year's worth of payments, G8 Education has a trailing yield of 6.3% on the current stock price of A$1.705. If you buy this business for its dividend, you should have an idea of whether G8 Education's dividend is reliable and sustainable. As a result, readers should always check whether G8 Education has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for G8 Education
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that G8 Education's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that G8 Education's earnings are down 3.3% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last nine years, G8 Education has lifted its dividend by approximately 12% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. G8 Education is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is G8 Education an attractive dividend stock, or better left on the shelf? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall, it's hard to get excited about G8 Education from a dividend perspective.
Wondering what the future holds for G8 Education? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
