Stock Analysis

Zhongyu Gas Holdings (HKG:3633) Is Increasing Its Dividend To HK$0.03

SEHK:3633
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The board of Zhongyu Gas Holdings Limited (HKG:3633) has announced that it will be increasing its dividend on the 15th of November to HK$0.03. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

View our latest analysis for Zhongyu Gas Holdings

Zhongyu Gas Holdings' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Zhongyu Gas Holdings was paying a whopping 2,062% as a dividend, but this only made up 23% of its overall earnings. 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.

Looking forward, earnings per share could rise by 111.0% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
SEHK:3633 Historic Dividend September 15th 2021

Zhongyu Gas Holdings' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2018, the dividend has gone from HK$0.05 to HK$0.10. This means that it has been growing its distributions at 26% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Zhongyu Gas Holdings has grown earnings per share at 111% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. 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. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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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