Towngas Smart Energy Company Limited (HKG:1083) will increase its dividend from last year's comparable payment on the 12th of July to HK$0.16. This makes the dividend yield about the same as the industry average at 5.1%.
View our latest analysis for Towngas Smart Energy
Towngas Smart Energy's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Towngas Smart Energy is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Over the next year, EPS is forecast to expand by 15.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.
Towngas Smart Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from HK$0.08 total annually to HK$0.16. This means that it has been growing its distributions at 7.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that Towngas Smart Energy's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Towngas Smart Energy could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On Towngas Smart Energy's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Towngas Smart Energy's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Towngas Smart Energy has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Towngas Smart Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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