NetDragon Websoft Holdings (HKG:777) Will Pay A Dividend Of CN¥0.50
NetDragon Websoft Holdings Limited (HKG:777) has announced that it will pay a dividend of CN¥0.50 per share on the 31st of October. This will take the annual payment to 9.6% of the stock price, which is above what most companies in the industry pay.
Estimates Indicate NetDragon Websoft Holdings' Could Struggle to Maintain Dividend Payments In The Future
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, NetDragon Websoft Holdings' profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
The next 12 months is set to see EPS grow by 43.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 139%, which probably can't continue without putting some pressure on the balance sheet.
View our latest analysis for NetDragon Websoft Holdings
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was CN¥0.317, compared to the most recent full-year payment of CN¥0.911. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though NetDragon Websoft Holdings' EPS has declined at around 15% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think NetDragon Websoft Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for NetDragon Websoft Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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