New World Development's (HKG:17) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of New World Development Company Limited (HKG:17) has announced that it will be increasing its dividend on the 21st of December to HK$1.50. This takes the annual payment to 6.0% of the current stock price, which is about average for the industry.

See our latest analysis for New World Development

New World Development's Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, New World Development's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

New World Development Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from HK$1.52 in 2011 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. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though New World Development's EPS has declined at around 34% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

Our Thoughts On New World Development's Dividend

In summary, while it's always good to see the dividend being raised, we don't think New World Development's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think New World Development is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for New World Development you should be aware of, and 1 of them is significant. We have also put together a list of global stocks with a solid dividend.

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.

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