The G8 Education Ltd (ASX: GEM) share price has bounced back significantly since its lows of late 2018, but if you've been thinking of buying shares in early education acquirer for its divided there are a few things you need to know today.
The first is that shares will go ex-dividend tomorrow on Thursday March 14, 2019. This is the date when shares start selling without the value of its next dividend payment.
An investor needs to own the shares before the ex-date to receive the dividend which will be paid on Friday April 5, 2019.
What is G8 Education's dividend yield?
At its recent full-year results G8 Education declared a final dividend of 8 cents per share (cps) for the second half of the year. This was down 20% on the 10 cps dividend declared in the same period in 2018 and at the current share price offers a trailing dividend yield of 3.8%, fully franked.
Is the dividend sustainable going forward?
This is a great question to ask before buying any company for its dividend.
G8 Education operates a 'proportionate' dividend policy which means the company aims to distribute 70% ‐ 80% of Net Profit After Tax (NPAT) in each half year period.
The policy was only introduced recently and makes sense for companies with stable earnings profiles. So it wouldn't be much good for commodity producers like Rio Tinto Limited (ASX: RIO), or BHP Group Ltd (ASX: BHP) where earnings can move around with the pricing cycle.
Unfortunately, in the case of G8 Education, the policy has seen the dividend fall from 24 cps in 2016 to 12.5 cps currently as profit has declined. This is obviously not a good thing if you are looking for growing, or in the least, sustainable, dividend payments.
This could be set to correct in the short term, as the two biggest recent challenges to G8's earnings – rising employment costs and increasing competition from new child care centers – appears to be easing.
Foolish Takeaway
I would expect G8 Education to start producing a lot more efficiency from the scale it has generated over the last eight years now that it is maturing. This may lead to higher dividends going forward, but without a clear competitive advantage, it wouldn't be my preferred dividend play today.
