HIROSHIMA GASLtd (TSE:9535) Is Due To Pay A Dividend Of ¥6.00

The board of HIROSHIMA GAS Co.,Ltd. (TSE:9535) has announced that it will pay a dividend on the 3rd of June, with investors receiving ¥6.00 per share. This means the annual payment is 3.2% of the current stock price, which is above the average for the industry.

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HIROSHIMA GASLtd's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, HIROSHIMA GASLtd 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, EPS could fall by 3.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 43%, which we are pretty comfortable with and we think is feasible on an earnings basis.

View our latest analysis for HIROSHIMA GASLtd

HIROSHIMA GASLtd Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥6.00 in 2015, and the most recent fiscal year payment was ¥12.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. It's not great to see that HIROSHIMA GASLtd's earnings per share has fallen at approximately 3.0% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While HIROSHIMA GASLtd is earning enough to cover the payments, the cash flows are lacking. We don't think HIROSHIMA GASLtd is a great stock to add to your portfolio if income is your focus.

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, HIROSHIMA GASLtd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is HIROSHIMA GASLtd 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.