Yahoo Finance Know This Before Buying IDP Education Limited (ASX:IEL) For Its Dividend
Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. IDP Education Limited (ASX:IEL) has paid a dividend to shareholders in the last few years. It currently yields 1.2%. Let's dig deeper into whether IDP Education should have a place in your portfolio.
View our latest analysis for IDP Education
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it the top 25% annual dividend yield payer?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share risen in the past couple of years?
Is its earnings sufficient to payout dividend at the current rate?
Will it have the ability to keep paying its dividends going forward?
How does IDP Education fare?
The company currently pays out 75% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 73% which, assuming the share price stays the same, leads to a dividend yield of 1.8%. In addition to this, EPS should increase to A$0.30.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. The reality is that it is too early to consider IDP Education as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, IDP Education produces a yield of 1.2%, which is on the low-side for Consumer Services stocks.
Next Steps:
After digging a little deeper into IDP Education's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I've put together three important aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for IEL’s future growth? Take a look at our free research report of analyst consensus for IEL’s outlook.
Valuation: What is IEL worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IEL is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
