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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
Far Eastern University, Incorporated (FEU) has nudged its cash dividend lower, to ₱14.00 per share from the prior ₱16.00 per share, as shown in its dividend history. While a ₱2 cut may look modest, dividend adjustments are rarely cosmetic. In FEU’s case, the latest interim financials suggest a clear rationale: profitability is softening as costs rise faster than revenues, cash is being pulled into capital spending, and operating cash conversion is pressured by seasonality and receivables growth.
This is not a distress story. It is, however, a capital-allocation story—a board choosing to preserve flexibility in a year when the underlying earnings engine is still expanding in volume (students) but absorbing heavier inputs (people, platforms, facilities).
The key weakness: margin compression despite revenue growth
FEU’s six-month results ended November 30, 2025, show the fundamental tension. Revenues rose 8% to ₱2.519 billion, largely attributed to a higher number of enrolled students. But operating expenses increased faster—11% to ₱1.981 billion—pulling operating income down 4% to ₱538.0 million. Net income followed the same direction, slipping 3% to ₱635.0 million, with earnings per share easing to ₱25.72 from ₱26.35.
For dividend watchers, this is the most dividend-relevant signal in the report: FEU is growing, but it is not gaining operating leverage—at least not in this period. When expenses outpace revenues, even a company with a strong balance sheet starts to reassess how much cash it wants to commit to recurring distributions.
What’s driving the cost surge?
Management points to several expense lines that rose as FEU “strongly supported its strategic targets” including personnel development, investments in data analysis, digital platforms, program expansion, and support for new sites. The narrative is explicit about the main drivers:
- Salaries and employee benefits increased due to more teaching and non-teaching personnel to support enrollment growth, plus wage and merit adjustments.
- Depreciation and amortization rose as new buildings and facilities were completed and capitalized, including renovations and infrastructure upgrades.
- Licenses and subscriptions increased with acquisitions of learning and administrative platforms (e.g., Canvas, Edusuite, Envoy) and other tools intended to strengthen service delivery.
- Repairs and maintenance increased due to improvement works across campuses.
These are not “bad” costs; they are strategic spend. But they are precisely the sort of expenditures that compete directly with dividends. If the board sees several quarters where investment-related expense growth stays elevated, a reduced dividend becomes a rational way to keep capacity for reinvestment without leaning on leverage.
The second weakness: “other income” and buffers are thinner
Another subtle but meaningful contributor is the softening of non-operating support. FEU reported other income of ₱169.6 million, down 6% from ₱181.0 million. In stable dividend stories, “other income” often functions as a cushion when core costs rise. When that cushion shrinks—even slightly—it makes the payout less comfortably covered by the total earnings mix.
The cash angle: heavy capex and negative operating cash flow
Dividend policy is often decided less by reported profit and more by cash availability. FEU’s cash flow statement underscores why management might be choosing caution now.
For the six months ended November 30, 2025:
- Net cash from operating activities was negative ₱114.6 million, reflecting working-capital absorption (especially receivables) despite growth in deferred revenues.
- Net cash used in investing activities was ₱479.1 million, including ₱845.1 million in acquisitions of property and equipment—a striking number for a six-month period.
- Net cash used in financing activities was ₱610.1 million, driven largely by ₱384.9 million of dividends paid, plus loan repayments and interest.
- Cash and cash equivalents ended at ₱1.593 billion, down from ₱2.457 billion at May 31, 2025.
Even if FEU remains liquid (and it does), the pattern is unmistakable: cash is being deployed aggressively. When a firm is simultaneously funding capex, paying dividends, and servicing debt, the board has two basic levers—raise external financing or temper distributions. FEU appears to be choosing the second.
Working capital pressure: receivables ballooned
Operating cash weakness is also linked to a classic education-sector dynamic: tuition billing and collections do not always move in lockstep with revenue recognition.
As of November 30, 2025, FEU’s trade and other receivables rose to ₱1.992 billion from ₱1.048 billion as of May 31, 2025, consistent with tuition assessments and installment payment schemes. This matters because receivables growth can temporarily inflate reported revenue while pulling cash out of the system.
Deferred revenues also spiked to ₱1.277 billion (from ₱131.3 million), reflecting assessed tuition fees to be recognized over the school year. Management notes that both receivables and deferred revenues typically unwind as tuition payments are collected and instructional services are delivered. Still, from a dividend standpoint, a big receivables build is a reminder: profits are seasonal, but cash can be even more seasonal.
Why now? A dividend cut can be a signal of a new “investment phase”
FEU’s commentary repeatedly emphasizes strategic expansion and capability-building, including support for new programs and sites, investments in data analysis, and in digital infrastructure. The balance sheet also reflects ongoing reinvestment: property and equipment increased to ₱9.650 billion from ₱9.066 billion in six months.
This is the context in which the dividend trim makes sense: FEU is prioritizing competitiveness and scale. But the trade-off is that the business becomes less “dividend-smooth” for a period, because investment spending and ramp-up costs reduce near-term distributable cash.
A further headwind: FEU disclosed that no tuition fee increase was implemented for SY 2025–2026, reinforcing accessibility but also limiting pricing-driven revenue expansion. If pricing is flat, then revenue growth depends more heavily on volume (enrollment) and mix, while costs like wages, maintenance, and technology subscriptions can still climb.
Not a balance-sheet problem—more a payout calibration
Importantly, FEU is not over-levered. Total liabilities were ₱4.226 billion versus equity of ₱16.573 billion as of November 30, 2025. Loans declined to ₱1.016 billion from ₱1.159 billion due to repayments, and the company remained compliant with bank covenants. Management also states it does not foresee a liquidity problem over the next 12 months.
Which is precisely why the dividend cut is notable: it wasn’t forced. It looks like a deliberate choice to keep optionality while profitability is temporarily pressured by reinvestment.
What investors should watch next
If the dividend reduction is a one-time reset rather than the start of a downward path, three things should improve in upcoming quarters:
- Expense growth moderates relative to revenue, allowing operating income to re-accelerate.
- Cash conversion improves as receivables normalize and operating cash flow turns positive outside peak investment cycles.
- Capex intensity eases from the first-half pace, or shows measurable payoff via stronger enrollment, retention, and program mix.
Bottom line
FEU’s dividend trim to ₱14 per share reads less like an alarm and more like a signal of earnings-quality and cash-discipline awareness. The weaknesses prompting the recalibration are visible in the numbers: net income down 3%, operating income down 4%, expenses up 11%, other income softer, operating cash flow negative, and capex elevated.
For income-oriented shareholders, the message is straightforward: FEU still looks fundamentally solid, but it is currently behaving more like a company in an investment and expansion cycle than a pure “steady payout” compounder. Whether ₱14 becomes the new normal—or merely a pause—will depend on how quickly management can turn today’s spending into tomorrow’s operating leverage.
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