NetEase (NASDAQ:NTES) Is Increasing Its Dividend To CN¥0.5225

The board of NetEase, Inc. (NASDAQ:NTES) has announced that it will be paying its dividend of CN¥0.5225 on the 22nd of September, an increased payment from last year's comparable dividend. This takes the dividend yield to 1.2%, which shareholders will be pleased with.

View our latest analysis for NetEase

NetEase's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, NetEase was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 23.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 3.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

NetEase's Dividend Has Lacked Consistency

NetEase has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was CN¥1.71 in 2014, and the most recent fiscal year payment was CN¥9.46. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. NetEase has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. NetEase has seen EPS rising for the last five years, at 32% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like NetEase's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 37 analysts we track are forecasting for NetEase for free with public analyst estimates for the company. Is NetEase not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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