China Gas Holdings (HKG:384) Is Due To Pay A Dividend Of HK$0.45

China Gas Holdings Limited (HKG:384) will pay a dividend of HK$0.45 on the 3rd of October. The dividend yield will be 4.8% based on this payment which is still above the industry average.

See our latest analysis for China Gas Holdings

China Gas Holdings' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, China Gas Holdings' dividend was only 39% of earnings, however it was paying out 281% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 40.2%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

China Gas Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was HK$0.0392 in 2012, and the most recent fiscal year payment was HK$0.55. This means that it has been growing its distributions at 30% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. China Gas Holdings has seen EPS rising for the last five years, at 11% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about China Gas Holdings' payments, as there could be some issues with sustaining them into the future. While China Gas Holdings is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, China Gas Holdings has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is China Gas Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.