The board of Scholastic Corporation (NASDAQ:SCHL) has announced that it will pay a dividend of $0.20 per share on the 14th of March. This payment means that the dividend yield will be 3.2%, which is around the industry average.
See our latest analysis for Scholastic
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Scholastic’s dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.
The next year is set to see EPS grow by 65.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.60 in 2014 to the most recent total annual payment of $0.80. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Investors could be attracted to the stock based on the quality of its payment history. Scholastic has impressed us by growing EPS at 10% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don’t necessarily think that makes it a great dividend stock. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we’ve identified 3 warning signs for Scholastic that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
