FEU Cuts Dividend as Rising Costs Put Cash Generation in Focus

The university operator can afford its payout, but a shrinking operating margin and heavy capital spending suggest management is protecting liquidity.

Far Eastern University Inc. has begun to retreat from a dividend level that appeared secure only a year ago, as rising operating expenses and weakening cash generation place new pressure on one of the Philippine market’s established income stocks.

The university operator declared a regular cash dividend of ₱14 a share on February 25, 2026, payable on March 24. That was down from ₱16 a share in each of the four preceding semiannual distributions, representing a 12.5% cut in the latest payment.

If FEU maintains the ₱14 rate for its next distribution, the annual dividend would fall to ₱28 a share from ₱32, also a 12.5% reduction. The more consequential question for shareholders is whether ₱14 represents a sustainable new base or merely the first step in a broader reset.

The cut adds an important market-level detail that is easy to miss in FEU’s consolidated annual accounts. Total dividends declared by the group declined only modestly, to approximately ₱785 million in the year ended May 31, 2026, from ₱793.1 million a year earlier. Viewed only through those totals, the change hardly looks dramatic. Viewed on a per-share basis, however, the board has already responded to weaker operating conditions.

Revenue rose 3.8% to ₱5.96 billion in the latest financial year, supported by growth in tuition and other school fees. But operating expenses climbed 13.7% to ₱4.45 billion, more than three times the rate of revenue growth. Operating income consequently fell 14.8% to ₱1.54 billion from ₱1.81 billion.

The widening gap between revenue and expense growth is particularly significant for a university business. Personnel costs, facilities, technology systems, and depreciation are difficult to reduce quickly without affecting operations or future competitiveness.

Salaries and employee benefits, FEU’s largest expense category, increased 11.7% to ₱2.20 billion. Depreciation and amortization rose 13.1% to ₱674.4 million, while licenses and subscriptions surged almost 70% to ₱286.5 million. Professional fees, utilities, taxes and licenses, and employee training also increased.

As a result, operating expenses rose to about 74.6% of revenue, compared with 68.2% a year earlier and 67.1% in fiscal 2024. The company’s core operating margin, after impairment losses and other operating income, narrowed to roughly 25.9% from 31.5% in 2025.

Net income held up better than the operating result, declining only 4.4% to ₱2.00 billion. Finance income rose to ₱488.7 million from ₱346.9 million, while finance costs declined. Other income also helped offset the deterioration in the education business.

That support is valuable, but it complicates the dividend picture. Investment returns and other nonoperating income can cushion earnings during a difficult year, yet they do not eliminate the need for the core business to produce enough cash to support facilities, expansion, and shareholder distributions.

Cash Flow Sends the Stronger Signal

FEU’s operating cash flow declined to ₱1.99 billion in fiscal 2026, from ₱2.02 billion in 2025 and ₱2.49 billion in 2024. The latest annual decline was relatively small at 1.9%, but the two-year drop was approximately 20%.

Working-capital movements contributed to the pressure. Trade and other receivables absorbed about ₱202 million of cash, while increases in other assets absorbed approximately ₱364 million. A ₱455 million increase in trade and other payables provided a partial offset. Cash generated from operations before income taxes still declined to ₱2.22 billion from ₱2.28 billion in 2025 and ₱2.61 billion in 2024.

On conventional payout measures, the dividend does not appear endangered. Dividends paid in fiscal 2026 amounted to roughly 40% of both net income and operating cash flow. Such coverage would normally provide a comfortable margin.

Capital expenditure changes the calculation.

FEU spent approximately ₱1.28 billion on property and equipment in fiscal 2026, up from ₱1.04 billion a year earlier and ₱677.5 million in fiscal 2024. After subtracting those expenditures from operating cash flow, FEU had about ₱708 million left before dividends. That was below the approximately ₱789 million of dividends paid during the year.

Not all capital expenditure should be treated as a recurring cost. Spending on new capacity can eventually produce additional enrollment, revenue, and cash flow. Still, the figures show why the board may be reluctant to defend the previous dividend simply because reported earnings provide accounting coverage.

The earlier ₱16 semiannual payment was well covered before investment in the business. It was less comfortably covered after that investment.

A Large Financial Cushion

The dividend reduction does not appear to have been forced by an immediate shortage of money.

At May 31, FEU held ₱2.57 billion in cash and cash equivalents. It also reported approximately ₱4.75 billion in financial assets measured at fair value and another ₱167 million in investment securities at amortized cost. Combined cash, financial assets, and investment securities totaled about ₱7.49 billion, equivalent to nearly 36% of total assets.

That portfolio gives FEU ample capacity to continue paying dividends through a period of weaker operating performance. It could also finance temporary gaps between operating cash flow, capital expenditure and distributions.

Capacity, however, is not the same as sustainability.

A company can preserve a dividend by allowing investment securities to mature, selling financial assets or drawing down cash. Such measures may be reasonable during a brief investment cycle, but they become less attractive when used to support a recurring shareholder distribution. Over time, dividends should be funded by cash the business generates after meeting its essential reinvestment requirements.

FEU’s decision to reduce the latest payment suggests that management may be protecting the financial asset base rather than allowing dividends to consume liquidity needed for expansion and long-term operations.

That distinction is important for investors. The balance sheet indicates that FEU can afford the ₱14 dividend. The income statement and cash-flow statement raise a different question: whether the company can maintain even that amount without weaker margins, elevated capital expenditure, or working-capital demands gradually eroding its financial flexibility.

Another Cut Can’t Be Ruled Out

FEU’s dividend history shows that distributions have moved with business conditions. Regular cash dividends recovered from lower payments around the pandemic period, reaching ₱14 in 2023 and ₱16 in late 2023. The ₱16 rate was then maintained through 2024 and 2025 before the February 2026 reduction.

The latest cut returns the semiannual payment to its early-2023 level. It also changes the investment case. Shareholders can no longer treat ₱32 a share as a stable annual dividend while viewing declining cash flow as only a future risk. The board has already acted.

A second ₱14 declaration would establish ₱28 a share as the likely new annual base. A return to ₱16 would suggest the February reduction was temporary. A payment below ₱14 would indicate that the dividend-reset cycle is continuing.

For now, FEU remains far from financial distress. Revenue is growing, the group remains profitable, and liquid financial resources are substantial. But the company is entering a period in which forward operating cash generation matters more than the historical payout ratio.

The key test will be whether recent investments produce enough additional revenue to offset the higher salaries, technology costs, and depreciation they have brought with them. If operating expenses continue rising at a double-digit rate while revenue remains in the low single digits, protecting the old dividend would require an increasingly aggressive call on cash and investments.

FEU has the balance sheet to delay that reckoning. The reduction to ₱14 suggests its board has chosen not to.

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Disclaimer: This is for informational purposes and is not investment advice. Figures come from company disclosures and exchange data; valuation ratios reflect the author’s calculations based on cited inputs.