Nio Dividend 2021 – The Case Of 1% Dividend Yield

Nio House. Source: Flickr

Nio Inc. (NYSE:NIO) is one of the leading electric vehicle (EV) companies in China.

It is also the largest EV player in China by market capitalization at roughly $60 billion USD as of Sept 2021.

Nio’s revenue source comes mostly from vehicle deliveries in addition to a small portion that comes from energy as well as services.

While Nio has gone public for nearly 3 years after completing its IPO in Sept 2018, the company has never declared or paid any cash dividends during the 3 years that the company has gone public.

The following excerpt extracted from Nio’s 2020 annual report explains about the company’s dividend policy:

• Dividend Policy
  We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

  If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying our ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreements, including the fees and expenses payable thereunder.

  Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

Therefore, Nio is currently a non-dividend-paying stock that does not declare any cash dividend to shareholders who hold the company’s ADS or American Depository Shares.

While Nio does not pay a dividend, it may do so in the future as most automakers do.

For your information, the automotive industry is highly profitable and the same goes for a successful automotive firm.

In addition to profits, a successful automaker also will be flushed with plenty of cash and this makes the case of a cash dividend payment extremely compelling.

That said, in this article, we are going to find out how likely Nio is in declaring a cash dividend in 2021 that yields 1% based on today’s stock price of $36 USD.

Let’s go take a look.

Nio’s Dividend Per Share And Cash Payment

If Nio were to declare a dividend that yields 1% based on today’s stock price of $36 USD per share, Nio’s dividend rate will come to $0.36 USD per share as shown in the table above.

For this amount of cash dividend, Nio’s cash payment will total as much as $563 million USD on the back of 1,564 million shares outstanding.

The number of shares outstanding is the latest figure extracted from Nio’s 2Q 2021 quarterly filing.

In short, Nio’s total cash payment for dividends will come to slightly more than half a billion USD for fiscal 2021 if it were to declare a cash dividend with a 1% yield.

Nio’s Earnings Estimate

Nio’s earnings estimate for fiscal 2021

The question is can Nio Inc. afford a cash dividend that will cost the company more than $500 million USD?

To find out, we need to know what Nio’s projected earnings are like for fiscal 2021.

According to the earnings estimate from Zacks.com (snapshot above), Nio will earn approximately -$0.79 USD per share in non-GAAP earnings for fiscal 2021 according to Zacks Consensus Estimate.

At this earnings figure, Nio is expected to make a loss in terms of profitability.

Additionally, Nio’s non-GAAP net income will amount to -$1,236 million USD on the back of 1,564 million shares outstanding for fiscal 2021.

Therefore, Nio is projected to incur a loss in fiscal 2021 at more than $1 billion USD, representing a year-on-year increase of 50% compared to fiscal 2020.

In other words, Nio’s losses in 2021 will get worst.

Nio’s Estimated Operating Cash Flow

Aside from earnings, Nio’s operating cash flow is projected to come to about $632 million USD for fiscal 2021 as shown in the table above.

This figure is estimated based on the fiscal 2020 result in which Nio produced $300 million of operating net cash out of $2.5 billion of revenue.

The fiscal 2020 operating net cash represents about 12% of revenue.

Using the same ratio, Nio will produce slightly more than $600 million of net cash from operations out of $5 billion of total revenue in fiscal 2021.

The estimated net cash from operations for fiscal 2021 represents a year-on-year growth of more than 100% compared to fiscal 2020.

Nio’s Estimated Free Cash Flow

Free cash flow is another important cash metric in dividend analysis.

Free cash flow is defined as the cash left after accounting for capital expenditures.

Therefore, free cash flow is usually associated with a cash surplus that can be used for many purposes, including paying a cash dividend.

In Nio’s case, its free cash flow is estimated to come to about $364 million USD in fiscal 2021.

Between fiscal 2018 and 2020, Nio’s capital expenditures average about $268 million USD.

Using the average figure for capital expenditure for fiscal 2021, Nio’s free cash flow is projected to come to $364 million USD, about 3X higher than the figure reported in fiscal 2020.

Nio’s Dividend Payout Ratio For 1% Yield

Nio’s affordability of a cash dividend for fiscal 2021 will largely depend on the dividend payout ratio which is shown in the table above.

As shown, Nio’s cash dividend payment which amounts to $563 million USD for fiscal 2021 translates to a dividend payout ratio of -46% and 155%, respectively, with respect to earnings and free cash flow.

At these levels of payout ratio, Nio’s dividend payment for a 1% yield looks overly stretched.

If Nio were to declare a cash dividend that yields 1%, the payment will consume the company’s entire free cash flow.

On top of that, Nio still needs to top it up with its cash reserves for the dividend payment as there is not enough free cash flow to cover the said dividend.

Besides, Nio is projected to incur more losses in fiscal 2021, and thus, the negative payout ratio with respect to earnings.

Therefore, Nio’s earnings will certainly be not enough to cover the said dividends.

As much as we would like to see Nio paying out a cash dividend for fiscal 2021, the company just can’t afford it now based on the projected financial position.

In short, Nio will not likely declare a cash dividend that yields 1% for fiscal 2021 due to the worsening earnings and limited free cash flow.

Nio’s Dividend Payout Ratio For 0.1% Yield

While Nio certainly can’t afford a 1% dividend yield, how about a dividend that yields only 0.1%?

At only a 0.1% yield, Nio’s dividend rate will come to only $0.036 USD per share or $56 million in cash payments according to the table above.

Against the earnings and free cash flow figures of -$1,236 million and $364 million respectively, Nio’s estimated dividend payout ratio will come to about -1% and 15% for both metrics.

At these levels of payout ratio, the dividend seems affordable for Nio from a free cash flow perspective.

However, from a profitability perspective, Nio still can’t afford the cash dividends as the company will still be making negative earnings in fiscal 2021.

Besides, at only a 0.1% yield, the dividend rate may seem too little for investors and will not make much of a difference for Nio’s stock with and without a dividend.

Therefore, Nio might as well keep the cash for re-investment and growth purposes since the company is still relatively a new player in the electric vehicle space.

In short, Nio does not seem to be able to afford to declare a cash dividend now, even one that yields only 0.1% as the company is still not turning a profit yet.

Besides, Nio’s earnings in fiscal 2021 are expected to get worse compared to 2020.

Therefore, it’s better for Nio to keep the cash for other purposes, including re-investment for future growth and paying down debt.

Conclusion

The case of a cash dividend payment that yields 1% in FY2021 is highly unrealistic and not probable for Nio at the moment.

The reason is that Nio is still not turning a profit, even in fiscal 2021.

Besides, Nio’s projected free cash flow for fiscal 2021 is limited and will not be enough to cover the said dividend that yields 1%.

Therefore, Nio does not have the financial capability to declare and pay a dividend in 2021.

When we reduce the dividend rate to only 0.1% yield, Nio seems to be able to afford one from a free cash flow perspective.

However, from a profitability perspective, the company is still not capable to afford one.

It’s better for Nio to save the cash for growth and paying down debt instead of cashing out for shareholders.

Besides, at only a 0.1% yield, the dividend will not make much of a difference to investors.

I would rather have Nio’s stock appreciating rather than receiving a cash dividend that yields only 0.1% for fiscal 2021.

Credits and References

1. Nio’s financial figures were obtained and referenced from the company’s financial statements which are available at the following links:

a) Nio Investor Relations
b) Nio Inc. – Detailed Estimates – Zacks.com

2. Featured images in this article are used under creative commons license and sourced from the following websites: Nio House and Chips.

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Disclosure

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

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