The advice of Educational Development Corporation (NASDAQ: EDUC) has announced that it will pay a dividend of US $ 0.10 per share on December 9. This makes the dividend yield of 4.1%, which will increase investor returns quite well.
See our latest analysis for educational development
The educational development dividend is well covered by income
While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. Prior to this announcement, Educational Development earnings easily covered the dividend, but free cash flow was 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.
Going forward, earnings per share could increase by 39.6% over the next year if the trend of recent years continues. If the dividend continues according to recent trends, we estimate that the payout ratio will be 24%, which is within the range that puts us at ease with the sustainability of the dividend.
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2011, the first annual payment was US $ 0.30, compared to the most recent annual payment of US $ 0.40. This works out to a compound annual growth rate (CAGR) of about 2.9% per year over that time period. 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, making it less attractive as a income investment.
The dividend seems likely to increase
Since the dividend has been reduced in the past, we need to check if profits are increasing and if this could lead to higher dividends in the future. It is encouraging to see that Educational Development has increased its earnings per share by 40% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and the growth in earnings also allows it to increase the dividend very easily.
In summary, while it is good to see that the dividend has not been reduced, we are a little cautious about the payments from Educational Development, as there could be issues with maintaining them in the future. While the low payout rate is a redemption feature, this is offset by the minimum amount of money to cover the payouts. We would probably look elsewhere for an income investment.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. As an example, we have met 6 warning signs for the development of education you should be aware of, and 2 of them are a bit of a concern. We have also set up a list of global stocks with a solid dividend.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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