Is NetEase, Inc. (NASDAQ:NTES) A Top Dividend Stock?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, NetEase, Inc. (NASDAQ:NTES) has paid dividends to shareholders, and these days it yields 1.1%. Let’s dig deeper into whether NetEase should have a place in your portfolio.

Check out our latest analysis for NetEase

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it the top 25% annual dividend yield payer?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

NasdaqGS:NTES Historical Dividend Yield December 17th 18

Does NetEase pass our checks?

NetEase has a trailing twelve-month payout ratio of 23%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 18% which, assuming the share price stays the same, leads to a dividend yield of around 0.9%. However, EPS should increase to CN¥52.03, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view NetEase as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, NetEase produces a yield of 1.1%, which is on the low-side for Entertainment stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in NetEase for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for NTES’s future growth? Take a look at our free research report of analyst consensus for NTES’s outlook.

2. Valuation: What is NTES worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NTES is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.