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Graham Holdings Company (NYSE:GHC) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of May to $1.65. Even though the dividend went up, the yield is still quite low at only 1.1%.
View our latest analysis for Graham Holdings
Graham Holdings' Dividend Is Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Graham Holdings was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Unless the company can turn things around, EPS could fall by 23.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 63%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was $9.80, compared to the most recent full-year payment of $6.60. This works out to be a decline of approximately 3.9% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 24% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Our Thoughts On Graham Holdings' Dividend
Overall, we always like to see the dividend being raised, but we don't think Graham Holdings will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Graham Holdings is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Graham Holdings you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.