Yum China Holdings (NYSE:YUMC) Is Paying Out A Larger Dividend Than Last Year

Yum China Holdings, Inc. (NYSE:YUMC) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of March to $0.16. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

View our latest analysis for Yum China Holdings

Yum China Holdings' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Yum China Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 47.1%. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Yum China Holdings' Dividend Has Lacked Consistency

Yum China Holdings has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from $0.40 total annually to $0.64. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

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. However, Yum China Holdings has only grown its earnings per share at 2.0% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Yum China Holdings' Dividend

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. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Yum China Holdings that you should be aware of before investing. Is Yum China Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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