Will JD.com Ever Pay A Dividend?

If JD.com began paying out a $0.50 annual dividend – a sizable amount of recent earnings – this would imply a current dividend yield of 0.6%. However, this would interrupt the growth trajectory of the company. In the short to intermediate-term JD.com is not expected to pay a dividend. The focus will continue to be on strong top-line growth and reinvesting in the business, much like Amazon.com (AMZN).

However, this does not mean that the company will never pay a dividend. In general, there are three things to look for to provide some insight into when this may occur: a manageable debt load, a stabilizing share count, and maturing growth.

The debt load is already manageable, as JD.com has done a nice job of growing quickly without putting undue pressure on the balance sheet. Indeed, the balance sheet appears quite healthy.

The share count shows some signs of being leaned on. JD.com’s ADS share count stood at ~1.36 billion in 2015, compared to ~1.60 billion as of the most recent report. This is not excessive, but it does give you an idea of where additional funds are being sourced. When the share count starts stabilizing, without the company taking on excess debt, this could indicate a turning point in capital allocation.

Finally, when the top-line growth starts to slow, or more importantly when the bottom-line starts to show consistency, this could also be an inflection point in capital allocation.

Final Thoughts

JD.com has been a very successful investment as of late, compounding shareholder money at nearly 25% per year for the past five years. This success is driven by very strong top-line improvement, but the bottom-line has not yet demonstrated the same consistency.

The company is still very much focused on growth and reinvestment. In that vein, a dividend is not likely in the short or intermediate-term.

Over the long-term, if JD.com is able to convert is robust top-line growth into consistent bottom-line results, there may come a time when the company has excess funds available. At this point, the company could focus on the balance sheet, acquisitions, retiring shares or sending cash to shareholders.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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