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Yum China Holdings (NYSE:YUMC) Has Re-Affirmed Its Dividend Of US$0.12

·3 min read

The board of Yum China Holdings, Inc. (NYSE:YUMC) has announced that it will pay a dividend of US$0.12 per share on the 29th of March. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.

View our latest analysis for Yum China Holdings

Yum China Holdings' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Yum China Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 29.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 32%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

historic-dividend
historic-dividend

Yum China Holdings' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The first annual payment during the last 4 years was US$0.40 in 2018, and the most recent fiscal year payment was US$0.48. This means that it has been growing its distributions at 4.7% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

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. Yum China Holdings has impressed us by growing EPS at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Yum China Holdings' Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Yum China Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.