Yahoo Finance Should Income Investors Look At Strategic Education, Inc. (NASDAQ:STRA) Before Its Ex-Dividend?
Readers hoping to buy Strategic Education, Inc. (NASDAQ:STRA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Strategic Education's shares on or after the 8th of March will not receive the dividend, which will be paid on the 18th of March.
The company's next dividend payment will be US$0.60 per share, and in the last 12 months, the company paid a total of US$2.40 per share. Based on the last year's worth of payments, Strategic Education has a trailing yield of 2.2% on the current stock price of US$108.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Strategic Education can afford its dividend, and if the dividend could grow.
View our latest analysis for Strategic Education
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 80% 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. A useful secondary check can be to evaluate whether Strategic Education generated enough free cash flow to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Strategic Education earnings per share are up 2.8% per annum over the last five years. A high payout ratio of 80% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Strategic Education could be signalling that its future growth prospects are thin.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, Strategic Education has lifted its dividend by approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Should investors buy Strategic Education for the upcoming dividend? Earnings per share have been growing modestly and Strategic Education paid out a bit over half of its earnings and free cash flow last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So if you want to do more digging on Strategic Education, you'll find it worthwhile knowing the risks that this stock faces. For example - Strategic Education has 1 warning sign we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
