NetEase's (NASDAQ:NTES) Upcoming Dividend Will Be Larger Than Last Year's
NetEase, Inc. (NASDAQ:NTES) has announced that it will be increasing its dividend on the 25th of March to US$0.40. This takes the dividend yield to 1.3%, which shareholders will be pleased with.
View our latest analysis for NetEase
NetEase's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. 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 4.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 5.0% by next year, which is in a pretty sustainable range.
NetEase's Dividend Has Lacked Consistency
NetEase has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from CN¥1.71 in 2014 to the most recent annual payment of CN¥7.38. This works out to be a compound annual growth rate (CAGR) of approximately 20% 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 Has Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see NetEase has been growing its earnings per share at 7.9% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for NetEase's prospects of growing its dividend payments in the future.
In Summary
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 30 analysts we track are forecasting for NetEase for free with public 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.
