The Hong Kong and China Gas Company Limited (HKG:3) has announced that it will pay a dividend of HK$0.23 per share on the 23rd of June. This payment means that the dividend yield will be 5.0%, which is around the industry average.
We've discovered 1 warning sign about Hong Kong and China Gas. View them for free.Hong Kong and China Gas' Projections Indicate Future Payments May Be Unsustainable
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Hong Kong and China Gas' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 20.8%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 100%, which probably can't continue without putting some pressure on the balance sheet.
See our latest analysis for Hong Kong and China Gas
Hong Kong and China Gas Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was HK$0.179, compared to the most recent full-year payment of HK$0.35. This means that it has been growing its distributions at 6.9% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Hong Kong and China Gas' EPS has declined at around 3.9% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Hong Kong and China Gas that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.