Noah Holdings (NYSE:NOAH) Will Pay A Smaller Dividend Than Last Year

Noah Holdings Limited (NYSE:NOAH) has announced that on 1st of August, it will be paying a dividend ofCN¥1.14, which a reduction from last year's comparable dividend. This means the annual payment is 4.8% of the current stock price, which is above the average for the industry.

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Noah Holdings' Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Noah Holdings' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 23.4% over the next year. If the dividend continues on this path, the payout ratio could be 12% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Noah Holdings

Noah Holdings' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2023, the dividend has gone from CN¥2.63 total annually to CN¥4.14. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Limited Growth Potential

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. Noah Holdings' EPS has fallen by approximately 10% per year during the past five years. 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.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Noah Holdings has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Noah Holdings that investors should know about before committing capital to this stock. Is Noah Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.