Interested In Shin Shin Natural Gas' (TWSE:9918) Upcoming NT$1.50 Dividend? You Have Four Days Left

Readers hoping to buy Shin Shin Natural Gas Company Limited (TWSE:9918) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Shin Shin Natural Gas' shares before the 17th of July in order to be eligible for the dividend, which will be paid on the 15th of August.

The company's next dividend payment will be NT$1.50 per share, on the back of last year when the company paid a total of NT$1.50 to shareholders. Based on the last year's worth of payments, Shin Shin Natural Gas stock has a trailing yield of around 3.6% on the current share price of NT$41.70. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Shin Shin Natural Gas

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Shin Shin Natural Gas is paying out an acceptable 69% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Shin Shin Natural Gas paid out more free cash flow than it generated - 121%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Shin Shin Natural Gas does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Shin Shin Natural Gas's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Shin Shin Natural Gas to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Shin Shin Natural Gas paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Shin Shin Natural Gas's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shin Shin Natural Gas has delivered an average of 2.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Shin Shin Natural Gas is keeping back more of its profits to grow the business.

The Bottom Line

Is Shin Shin Natural Gas an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 121% of its cashflow, which is uncomfortably high. All things considered, we are not particularly enthused about Shin Shin Natural Gas from a dividend perspective.

If you're not too concerned about Shin Shin Natural Gas's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. We've identified 2 warning signs with Shin Shin Natural Gas (at least 1 which is significant), and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com