Yahoo Finance IDP Education (ASX:IEL) Is Increasing Its Dividend To A$0.20
IDP Education Limited (ASX:IEL) will increase its dividend from last year's comparable payment on the 28th of September to A$0.20. This makes the dividend yield about the same as the industry average at 1.6%.
View our latest analysis for IDP Education
IDP Education's Earnings Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, IDP Education was paying out 77% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
Looking forward, earnings per share is forecast to rise by 77.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 48% which brings it into quite a comfortable range.
IDP Education's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was A$0.055, compared to the most recent full-year payment of A$0.41. This means that it has been growing its distributions at 33% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
IDP Education Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that IDP Education has been growing its earnings per share at 21% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which IDP Education hasn't been doing.
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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
