New World Development (HKG:17) Will Pay A Dividend Of HK$0.56

New World Development Company Limited (HKG:17) will pay a dividend of HK$0.56 on the 12th of April. This means the dividend yield will be fairly typical at 6.6%.

Check out our latest analysis for New World Development

New World Development's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach , which is in a comfortable range for us.

New World Development Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from HK$1.52 in 2012 to the most recent annual payment of HK$2.06. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though New World Development's EPS has declined at around 100% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

New World Development's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about New World Development's payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 3 warning signs for New World Development you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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.