Stock Analysis

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

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Zhongyu Gas Holdings Limited (HKG:3633) will increase its dividend on the 15th of November to HK$0.03. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

View our latest analysis for Zhongyu Gas Holdings

Zhongyu Gas Holdings' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Zhongyu Gas Holdings was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 111.8% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

SEHK:3633 Historic Dividend October 13th 2021

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 first annual payment during the last 4 years was HK$0.05 in 2017, and the most recent fiscal year payment was HK$0.10. This means that it has been growing its distributions at 19% per annum over that time. Zhongyu Gas Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

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. It's encouraging to see Zhongyu Gas Holdings has been growing its earnings per share at 112% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

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. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. To that end, Zhongyu Gas Holdings has 2 warning signs (and 1 which is concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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.

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