Shin Shin Natural Gas (TWSE:9918) Is Paying Out A Larger Dividend Than Last Year

Shin Shin Natural Gas Company Limited (TWSE:9918) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of August to NT$1.50. This will take the annual payment to 3.6% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Shin Shin Natural Gas

Shin Shin Natural Gas' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Shin Shin Natural Gas' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 128% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share could rise by 9.4% over the next year if the trend from the last few years continues. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 70% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was NT$1.20 in 2014, and the most recent fiscal year payment was NT$1.50. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Shin Shin Natural Gas Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Shin Shin Natural Gas has grown earnings per share at 9.4% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Shin Shin Natural Gas' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Shin Shin Natural Gas will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Shin Shin Natural Gas that investors should know about before committing capital to this stock. 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.