NetEase's (NASDAQ:NTES) Upcoming Dividend Will Be Larger Than Last Year's

NetEase, Inc. (NASDAQ:NTES) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of September to CN¥0.3575. This will take the dividend yield to an attractive 1.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for NetEase

NetEase's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, NetEase's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 43.4%. If the dividend continues on this path, the payout ratio could be 3.6% by next year, which we think can be pretty sustainable going forward.

NetEase's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the dividend has gone from CN¥1.71 total annually to CN¥7.38. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See NetEase's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that NetEase has grown earnings per share at 7.4% per year over the past five years. NetEase definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, it's great to see the dividend being raised and that it is still 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 35 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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