Warning: Overvaluation, Unsustainable Dividend, And Extreme Dilution At Student Transportation

On the surface, Student Transportation (STB) has two characteristics that make it attractive to dividend investors.

The first is its dividend yield. Student Transportation is currently trading at a dividend yield of 7.4%, making it a member of the short list of high dividend stocks with 5%+ dividend yields.

The second noticeable characteristic of Student Transportation is that it pays monthly dividends.

Monthly dividends are ideal for investors that rely on dividend income to cover their expenses, such as retirees. For non-retirees, monthly dividends also allow for shorter compounding periods and superior long-term total returns.

A high dividend yield combined with monthly dividend payments is very powerful for income-oriented investors. For these reasons, Student Transportation may make an appealing investment.

However, further research indicates that Student Transportation is overvalued and its dividend is likely unsustainable.

This article will analyze the investment prospects of Student Transportation in detail.

Business Overview

Student Transportation is the third-largest provider of student transportation and the largest publicly-traded company in this industry.

The company was founded in 1997 by Denis J. Gallagher, who continues to serve as the company’s Chairman and Chief Executive Officer. Student Transportation celebrated its 20th anniversary in May. The company executed its initial public offering on the Toronto Stock Exchange in 2004 and in 2011, the company became cross-listed on the NASDAQ.

Student Transportation’s head office is located in Barrie, Ontario, Canada. With that said, the majority of the company’s revenues are derived in the United States and the company reports financial results in USD. Investigative investors should note that Student Transportation files its regulatory filings via SEDAR, the Canadian equivalent of EDGAR (a database and searching system maintained by the U.S. Securities & Exchange Commission), making the company’s financial statement slightly elusive if you are unsure where to look.

Growth Prospects

Student Transportation has experienced very good growth in recent years.

Source: Student Transportation Investor Relations Website

The company has grown its revenue at a rate of ~12.9% over the past 4 years and its adjusted EBITDA at a rate of ~13.7% per year during the same time period.

Student Transportation has also expanded geographically.