Yahoo Finance Interested In Yum China Holdings' (NYSE:YUMC) Upcoming US$0.12 Dividend? You Have Three Days Left
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Yum China Holdings, Inc. (NYSE:YUMC) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Yum China Holdings' shares on or after the 24th of August will not receive the dividend, which will be paid on the 15th of September.
The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.48 to shareholders. Based on the last year's worth of payments, Yum China Holdings stock has a trailing yield of around 1.0% on the current share price of $47.16. If you buy this business for its dividend, you should have an idea of whether Yum China Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Yum China Holdings
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Yum China Holdings's payout ratio is modest, at just 27% of profit. A useful secondary check can be to evaluate whether Yum China Holdings generated enough free cash flow to afford its dividend. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Yum China Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Yum China Holdings earnings per share are up 6.1% per annum over the last five years. Decent historical earnings per share growth suggests Yum China Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Yum China Holdings has increased its dividend at approximately 3.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Yum China Holdings? Earnings per share have been growing at a steady rate, and Yum China Holdings paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, it's hard to get excited about Yum China Holdings from a dividend perspective.
On that note, you'll want to research what risks Yum China Holdings is facing. Every company has risks, and we've spotted 1 warning sign for Yum China Holdings you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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