Yahoo Finance IDP Education (ASX:IEL) Will Pay A Larger Dividend Than Last Year At A$0.25
The board of IDP Education Limited (ASX:IEL) has announced that it will be increasing its dividend by 19% on the 27th of March to A$0.25, up from last year's comparable payment of A$0.21. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.
View our latest analysis for IDP Education
IDP Education's Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend made up a very large portion of earnings and also represented 93% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.
The next year is set to see EPS grow by 56.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.
IDP Education's Dividend Has Lacked Consistency
Looking back, IDP Education's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was A$0.055, compared to the most recent full-year payment of A$0.41. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. IDP Education has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
IDP Education's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that IDP Education has grown earnings per share at 19% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On IDP Education's Dividend
Overall, we always like to see the dividend being raised, but we don't think IDP Education will make a great income stock. Strong earnings growth means IDP Education has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 15 IDP Education analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is IDP Education 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.
