Neusoft Education Technology Co. Limited (HKG:9616) will increase its dividend on June 24 to HK$0.14. This brings the annual payout to 4.0% of the current share price, which is unfortunately less than what the industry is paying.
Check out our latest analysis for Neusoft Education Technology
Neusoft Education Technology payment provides strong revenue coverage
The dividend yield is a little low, but the sustainability of payouts is also an important part of valuing an income stock. Based on the last payout, Neusoft Education Technology was earning enough to cover the dividend, but free cash flow was not positive. In general, we consider cash flow to be more important than earnings, so we would be cautious before relying on the sustainability of this dividend.
Next year is expected to see EPS grow by 38.0%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we believe can be quite sustainable in the future.
Neusoft Education Technology does not have a long payment history
It is difficult to pass judgment on the stability of a dividend when the company has not paid one for a very long time. That doesn’t mean the company can’t pay a good dividend, just that we want to wait until it can prove itself.
The dividend should increase
Investors who have held shares of the company for the past few years will be pleased with the dividend income they have received. Neusoft Education Technology has impressed us by increasing EPS by 13% per year for the past five years. EPS growth bodes well for the dividend, as does the low payout ratio the company is currently reporting.
Our Thoughts on the Neusoft Education Technology Dividend
In summary, while it’s always good to see the dividend increase, we don’t think Neusoft Education Technology’s payouts are strong. With no cash flow, it’s hard to see how the company can sustain a dividend payment. We don’t think Neusoft Education Technology is a great stock to add to your portfolio if income is your priority.
Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. However, there are other things for investors to consider when analyzing stock performance. Example: we have identified 4 warning signs for Neusoft Education Technology (1 of which makes us a little uncomfortable!) that you should know. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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