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A Closer Look at Tencent’s Dividend Growth

Tencent Holdings Ltd (SEHK: 700) is one of the largest technology companies in China – the operator of the ubiquitous WeChat “super-app”, it needs no introduction. It has 1.13billion people on its Weixin and WeChat platforms and dominates in the online gaming and social media segments.

While Tencent is known for reporting strong growth year-on-year and is mostly seen as a growth stock, it might come as a surprise to investors that the company has also been paying a dividend since 2004.

Let’s look at its dividend payout history for the last five years to see if it’s potentially a good dividend stock for the future as well.

Where are my dividends?

Source: Compiled by author, data from Tencent Holdings’ annual reports

From the graph above, we can clearly see that Tencent’s dividend per share (DPS) increased from 24 Hong Kong cents in 2013 to 100 Hong Kong cents in 2018. This represents a DPS compound annual growth rate (CAGR) of 33% during that period.

With such a high growth rate in Tencent’s dividend payout, as an investor I would ask myself if the technology conglomerate’s dividend is backed by strong business performance.

On this front, Tencent has seen its profits attributable to investors increase from RMB 18.38 billion (US$2.61 billion) in 2013 to RMB 66.34 billion in 2018, representing a CAGR of 29.27%. This is largely in-line with the dividend increase calculated above.

From the above, we can see that Tencent’s dividend growth is easily supported by the growth in profits.

Key takeaway

The above analysis of Tencent’s dividend growth rate should be a starting point for investors to determine if the technology conglomerate can continue to sustain such a high dividend growth rate into the future.

If that is indeed possible, Tencent might well become an unorthodox option as an income stock in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Saket Jhajharia owns shares in Tencent Holdings Ltd.