Read this before buying G8 Education Ltd for its dividend

G8 Education Ltd (ASX:GEM) shares go ex-dividend on Thursday March 14, 2019. Here's what you need to know.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned. You can follow him on Twitter @Regan_Invests. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Person handing out $50 notes, symbolising ex-dividend date.
Broker Notes

Where to invest $20,000 into ASX 200 shares

Brokers think these shares could be top picks for Aussie investors.

Read more »

The words short selling in red against a black background
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

Woman in celebratory fist move looking at phone
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format.
Share Market News

Record CBA share price and blockbuster merger push ASX 200 financials sector to the top

ASX financial stocks led the 11 market sectors last week with a 1.95% gain.

Read more »

A graphic showing a businessman running up a white upwards rising arrow symbolising the soaring Magellan share price today
Share Market News

CBA Shares in focus: How Australia's most valuable company is using AI to compete

Could AI initiatives drive CBA shares higher?

Read more »

Man jumps for joy in front of a background of a rising stocks graphic.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Looking for big returns? Brokers think these shares could do the job.

Read more »

asx share price represented by cartoon letters spelling the word FOMO
Share Market News

What did Macquarie's "FOMO Meter" reveal about the stock market in May?

Is the market getting frothy or is there still room to climb?

Read more »

Market up or down
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough end to the week...

Read more »