Hong Kong and China Gas (HKG:3) Will Pay A Dividend Of HK$0.12

The Hong Kong and China Gas Company Limited's (HKG:3) investors are due to receive a payment of HK$0.12 per share on 11th of September. This means the dividend yield will be fairly typical at 5.4%.

View our latest analysis for Hong Kong and China Gas

Hong Kong and China Gas' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the company was paying out 119% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 37.5% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 92% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Hong Kong and China Gas Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from HK$0.179 total annually to HK$0.35. This means that it has been growing its distributions at 6.9% 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.

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. It's not great to see that Hong Kong and China Gas' earnings per share has fallen at approximately 8.2% per year over the past 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.

Hong Kong and China Gas' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. 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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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.