China Gas Holdings (HKG:384) Will Pay A Dividend Of HK$0.35

The board of China Gas Holdings Limited (HKG:384) has announced that it will pay a dividend of HK$0.35 per share on the 4th of October. The yield is still above the industry average at 6.9%.

View our latest analysis for China Gas Holdings

China Gas Holdings' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, China Gas Holdings' dividend made up quite a large proportion of earnings but only 51% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 61.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

China Gas Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was HK$0.121 in 2014, and the most recent fiscal year payment was HK$0.50. This means that it has been growing its distributions at 15% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though China Gas Holdings' EPS has declined at around 18% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On China Gas Holdings' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think China Gas Holdings is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for China Gas Holdings that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.