Yahoo Finance NetEase's (NASDAQ:NTES) Shareholders Will Receive A Bigger Dividend Than Last Year
The board of NetEase, Inc. (NASDAQ:NTES) has announced that it will be paying its dividend of CN¥0.5225 on the 22nd of September, an increased payment from last year's comparable dividend. This will take the annual payment to 1.2% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for NetEase
NetEase's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, NetEase was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 23.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 3.9% by next year, which is in a pretty sustainable range.
NetEase's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from CN¥1.71 total annually to CN¥9.46. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that NetEase has grown earnings per share at 32% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
NetEase Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 37 NetEase analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is NetEase not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
