NetDragon Websoft Holdings Limited (HKG:777) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 10th of September will not receive this dividend, which will be paid on the 18th of October.
NetDragon Websoft Holdings's upcoming dividend is CN¥0.15 a share, following on from the last 12 months, when the company distributed a total of CN¥0.27 per share to shareholders. Last year's total dividend payments show that NetDragon Websoft Holdings has a trailing yield of 1.5% on the current share price of HK$19.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether NetDragon Websoft Holdings can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. NetDragon Websoft Holdings has a low and conservative payout ratio of just 18% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 6.1% of its cash flow last year.
It's positive to see that NetDragon Websoft 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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see NetDragon Websoft Holdings's earnings have been skyrocketing, up 54% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, NetDragon Websoft Holdings looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, NetDragon Websoft Holdings has lifted its dividend by approximately 4.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because NetDragon Websoft Holdings is keeping back more of its profits to grow the business.
The Bottom Line
Is NetDragon Websoft Holdings an attractive dividend stock, or better left on the shelf? NetDragon Websoft Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. NetDragon Websoft Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for NetDragon Websoft Holdings? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.