Zhongyu Gas Holdings' (HKG:3633) Dividend Will Be Increased To HK$0.03

Zhongyu Gas Holdings Limited's (HKG:3633) dividend will be increasing on the 15th of November to HK$0.03, with investors receiving 50% more than last year. Even though the dividend went up, the yield is still quite low at only 1.5%.

View our latest analysis for Zhongyu Gas Holdings

Zhongyu Gas Holdings' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Zhongyu Gas Holdings was paying only paying out a fraction of earnings, but the payment was a massive 1,855% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 111.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Zhongyu Gas Holdings' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from HK$0.05 in 2018 to the most recent annual payment of HK$0.09. This means that it has been growing its distributions at 22% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Zhongyu Gas Holdings has seen EPS rising for the last five years, at 111% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Zhongyu Gas Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Zhongyu Gas Holdings will make a great income stock. While Zhongyu Gas Holdings is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Zhongyu Gas Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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