Towngas Smart Energy's (HKG:1083) Shareholders Will Receive A Bigger Dividend Than Last Year

Towngas Smart Energy Company Limited (HKG:1083) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of July to HK$0.16. This takes the annual payment to 5.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Towngas Smart Energy

Towngas Smart Energy's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Towngas Smart Energy's earnings easily covered the dividend, but free cash flows were negative. 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.

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 been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was HK$0.08 in 2014, and the most recent fiscal year payment was HK$0.16. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Towngas Smart Energy's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. 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

Overall, we always like to see the dividend being raised, but we don't think Towngas Smart Energy will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Towngas Smart Energy is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Towngas Smart Energy you should be aware of, and 1 of them is concerning. 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.