What's driving New Hope shares' gigantic 8.4% dividend yield?

Is an 8.37% dividend yield too good to be true?

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Looking at the New Hope Corporation Ltd (ASX: NHC) shares today, and one metric will probably jump out at you.

That would be this ASX 200 energy and coal share's humongous dividend yield.

New Hope shares last traded at $4.54 each, up 0.44% for the day on Monday. At this stock price, New Hope shares are seemingly offering a jaw-dropping dividend yield of 8.37%.

What's more, New Hope's dividends have historically come with full franking credits attached. This means that this dividend yield grosses up to an even more impressive 11.96% with the value of those full franking credits.

But by now, alarm bells might be ringing in prudent investors' ears. After all, an 8.37% dividend yield isn't exactly normal on the ASX. It's well above what even the big ASX banks are currently offering. So is this yield for real? Or does it represent a dreaded dividend trap?

Are New Hope shares really offering an 8.3% yield right now?

Well, the yield itself is real enough. It derives from New Hope's last two dividend payments. The first was the 21 cents per share final dividend from November last year. The second, the interim dividend of 17 cents per share that will be paid out on Wednesday this week, as it happens.

Both payments came with full franking credits attached.

Plugging those dividends into the present New Hope share price, and we get a trailing dividend yield of 8.37%.

Further, last year's final dividend had both an ordinary and a special component. If we include the special dividend of 9 cents per share that was also dished out last November (which also came fully franked), New Hope would have an even more stonking trailing yield of 10.35%.

However, a major caveat needs to be noted. These metrics and yields all reflect the past, not the future. An investor buying New Hope shares today is in no way entitled to an 8.32% yield, and nor should expect to receive it.

No company is under any obligations to maintain or increase its dividends from year to year. There is nothing stopping New Hope from halving the dividends it pays out over the next 12 months, or scrapping them entirely.

So what can investors expect from New Hope?

What to expect from this ASX 200 energy stock going forward

Well, firstly, the massive dividends investors have enjoyed over the past 12 months were fuelled by historically high coal prices. Since the costs of New Hope's coal extraction remain relatively fixed, any surges in the price of coal itself end up passing almost straight through to the company's bottom line.

When this happens, as it did in 2022 and 2023, New Hope's coffers quickly overflow, and investors enjoy huge windfalls in the form of dividends. But when the opposite scenario happens, the money quickly dries up.

As my Fool colleague Bronwyn covered recently, the end of 2023 and 2024 so far have indeed seen a significant reduction in the global price of coal.

As such, it looks increasingly unlikely that New Hope will be able to maintain the same level of dividend income over the next 12 months as it has over the past 12.

That's the view of several ASX experts right now anyway. As my colleague reported:

The consensus analyst forecast published on CommSec is for New Hope shares to pay 34.9 cents per share in dividends this year. That's half the amount paid in 2023.

Those analysts are also expecting 33 cents per share in dividends over 2025, followed by just 27 cents in 2026.

If that's the case, New Hope won't be trading on a dividend yield of over 8% for too much longer.

Foolish takeaway

Of course, these are all predictions. None of us know what the next New Hope dividends will be (or the subsequent payments) until the company reveals its hand.

But this is certainly something to keep in mind for anyone buying New Hope shares today expecting an 8% yield on their cash going forward.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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