Towngas Smart Energy (HKG:1083) Will Pay A Dividend Of HK$0.15

Towngas Smart Energy Company Limited (HKG:1083) has announced that it will pay a dividend of HK$0.15 per share on the 11th of July. This means the dividend yield will be fairly typical at 4.4%.

Check out our latest analysis for Towngas Smart Energy

Towngas Smart Energy's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Towngas Smart Energy's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 93.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Towngas Smart Energy Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was HK$0.05, compared to the most recent full-year payment of HK$0.15. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Towngas Smart Energy has seen earnings per share falling at 9.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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.

Our Thoughts On Towngas Smart Energy's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Towngas Smart Energy's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Towngas Smart Energy (1 doesn't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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