Yahoo Finance There's A Lot To Like About SLM's (NASDAQ:SLM) Upcoming US$0.03 Dividend
It looks like SLM Corporation (NASDAQ:SLM) is about to go ex-dividend in the next four days. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 15th of March.
SLM's next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.12 per share. Last year's total dividend payments show that SLM has a trailing yield of 0.8% on the current share price of $15.79. If you buy this business for its dividend, you should have an idea of whether SLM's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for SLM
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. SLM paid out just 5.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. SLM paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see SLM's earnings have been skyrocketing, up 31% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SLM's dividend payments are broadly unchanged compared to where they were two years ago.
Final Takeaway
Is SLM an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, SLM appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
So while SLM looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for SLM that we strongly recommend you have a look at before investing in the company.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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