Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see NetEase, Inc. (NASDAQ:NTES) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 12th of March in order to receive the dividend, which the company will pay on the 20th of March.
NetEase's next dividend payment will be US$1.02 per share. Last year, in total, the company distributed US$47.73 to shareholders. Last year's total dividend payments show that NetEase has a trailing yield of 2.0% on the current share price of $336.21. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether NetEase can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. NetEase paid out a comfortable 47% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see NetEase has grown its earnings rapidly, up 23% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, NetEase has lifted its dividend by approximately 33% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is NetEase an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, NetEase paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks NetEase is facing. Every company has risks, and we've spotted 1 warning sign for NetEase you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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