Shin Shin Natural Gas (TWSE:9918) Has Announced That It Will Be Increasing Its Dividend To NT$1.50

Shin Shin Natural Gas Company Limited (TWSE:9918) will increase its dividend from last year's comparable payment on the 15th of August to NT$1.50. This takes the dividend yield to 3.6%, which shareholders will be pleased with.

See our latest analysis for Shin Shin Natural Gas

Shin Shin Natural Gas' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 181% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS could expand by 9.6% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of NT$1.20 in 2014 to the most recent total annual payment of NT$1.50. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

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. Shin Shin Natural Gas has impressed us by growing EPS at 9.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Shin Shin Natural Gas' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shin Shin Natural Gas' payments are rock solid. While Shin Shin Natural Gas is earning enough to cover the payments, the cash flows are lacking. We don't think Shin Shin Natural Gas is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Shin Shin Natural Gas you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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