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China Tian Lun Gas Holdings Limited's (HKG:1600) Could Be A Buy For Its Upcoming Dividend

Simply Wall St

China Tian Lun Gas Holdings Limited (HKG:1600) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 19th of May in order to receive the dividend, which the company will pay on the 2nd of June.

China Tian Lun Gas Holdings's next dividend payment will be HK$0.12 per share, and in the last 12 months, the company paid a total of HK$0.21 per share. Based on the last year's worth of payments, China Tian Lun Gas Holdings has a trailing yield of 4.8% on the current stock price of HK$5.42. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether China Tian Lun Gas Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for China Tian Lun Gas Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately China Tian Lun Gas Holdings's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether China Tian Lun Gas Holdings generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SEHK:1600 Historical Dividend Yield May 14th 2020

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see China Tian Lun Gas Holdings has grown its earnings rapidly, up 25% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past four years, China Tian Lun Gas Holdings has increased its dividend at approximately 35% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid China Tian Lun Gas Holdings? We love that China Tian Lun Gas Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about China Tian Lun Gas Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in China Tian Lun Gas Holdings for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for China Tian Lun Gas Holdings that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.