G8 Education Ltd (ASX:GEM) shares are tipped to pay a 6.67% fully franked dividend in 2017. Grossed up for those tax-effective franking credits, G8 Education (GEM) shares have an after-tax 9.6% yield. Try getting that at the bank.
G8 Education's (GEM) share price
Should you buy GEM shares for a dividend?
G8 Education is Australia's largest publicly-listed education centre owner and operator. Through acquisitions it has grown from humble beginnings to offering more than 37,000 places in around 500 childcare centres across Australia and Singapore.
To grow as it has the company's strategy was to issue shares at elevated levels (at say 10 times profits), buy private childcare centres at lower multiples (e.g. four times profits), then post huge profit increases. Dividends have followed suit, climbing to 24 cents per share per year (paid quarterly). That puts it on a big dividend yield.
Its share valuation looks compelling, too. According to Ord Minnett analysts, who recently slapped an 'accumulate' rating on the stock according to Dow Jones Newswires, G8 Education shares are worth $3.78.
Foolish Takeaway
I think an investment in G8 Education shares — for dividends or growth — is a classic case of be there for a good time, not a long time. With regulation and reliance on government spending in one hand and no competitive advantage on the other, I think G8 Education could one day be caught between a rock and a hard place.
So while it is a money printing machine today, it may not always be that way.
