ONE Gas (NYSE:OGS) Will Pay A Larger Dividend Than Last Year At $0.65
ONE Gas, Inc. (NYSE:OGS) will increase its dividend on the 10th of March to $0.65, which is 4.8% higher than last year's payment from the same period of $0.62. Based on this payment, the dividend yield for the company will be 3.1%, which is fairly typical for the industry.
Check out our latest analysis for ONE Gas
ONE Gas' Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, ONE Gas' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 11.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.
ONE Gas Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 9 years was $1.12 in 2014, and the most recent fiscal year payment was $2.48. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. ONE Gas has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.
We Could See ONE Gas' Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. ONE Gas has impressed us by growing EPS at 5.7% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
In Summary
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for ONE Gas that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.
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