Hong Kong and China Gas (HKG:3) Has Affirmed Its Dividend Of HK$0.12

The board of The Hong Kong and China Gas Company Limited (HKG:3) has announced that it will pay a dividend of HK$0.12 per share on the 8th of September. This means the annual payment is 5.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Hong Kong and China Gas

Hong Kong and China Gas Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 21.5%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 104% over the next year.

Hong Kong and China Gas Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of HK$0.163 in 2013 to the most recent total annual payment of HK$0.35. This means that it has been growing its distributions at 7.9% 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 Come By

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Hong Kong and China Gas' earnings per share has shrunk at approximately 8.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hong Kong and China Gas' payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For instance, we've picked out 2 warning signs for Hong Kong and China Gas that investors should take into consideration. 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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