With constant chatter about student loan forgiveness and relief, it’s understandably a nerve-wracking time for investors in student loan servicer Navient (Nasdaq: NAVI).
Over the past year, the stock has performed extremely well, having more than doubled, proving that politics often don’t affect the market or individual stocks as strongly as we think they do.
Navient has paid a $0.16 per share quarterly dividend since 2015. Will it be able to continue to pay shareholders the 3% yield?
This is an interesting situation. Navient’s net interest income (the cash flow figure we use for companies that lend money) has been trickling lower over the past few years. SafetyNet Pro doesn’t like that. The system penalizes companies whose cash flow is headed in the wrong direction.
In 2017, Navient’s net interest income was $1.41 billion. Assuming the $1.17 billion estimate for 2021 is accurate, net interest income has fallen in three of the last four years. That’s not good.
However, the company pays so little of its net interest income out in dividends that the decline shouldn’t be a problem.
In 2020, Navient paid just $123 million, or 10% of its net interest income, in dividends. In 2021, it is forecast to have paid $103 million, or 9% of its net interest income. That’s about the lowest payout ratio I’ve ever seen for a company with a decent dividend yield.
Because the company has never cut its dividend – and especially because Navient’s payout ratio is so low – the declining net interest income is no problem.
Safety Net Pro is a quantitative system. It awards or subtracts points for different financial metrics. It typically paints a very accurate picture of a company’s ability to afford its dividend.
Navient was penalized for falling net interest income over the past one and three years. But its tiny payout ratio means shareholders should continue to receive their $0.16 per share for the time being.
Dividend Safety Rating: C
— Marc Lichtenfeld
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Source: Wealthy Retirement