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Is It Worth Considering China Gas Holdings Limited (HKG:384) For Its Upcoming Dividend?

Simply Wall St

China Gas Holdings Limited (HKG:384) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 26th of August, you won't be eligible to receive this dividend, when it is paid on the 30th of September.

China Gas Holdings's upcoming dividend is HK$0.36 a share, following on from the last 12 months, when the company distributed a total of HK$0.44 per share to shareholders. Calculating the last year's worth of payments shows that China Gas Holdings has a trailing yield of 1.4% on the current share price of HK$31.6. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether China Gas Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for China Gas Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China Gas Holdings paid out a comfortable 27% of its profit last year. A useful secondary check can be to evaluate whether China Gas Holdings generated enough free cash flow to afford its dividend. China Gas Holdings paid out more free cash flow than it generated - 124%, 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.

China Gas Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to China Gas Holdings's ability to maintain its dividend.

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

SEHK:384 Historical Dividend Yield, August 21st 2019

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see China Gas Holdings has grown its earnings rapidly, up 25% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. China Gas Holdings has delivered an average of 41% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Has China Gas Holdings got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy China Gas Holdings today.

Ever wonder what the future holds for China Gas Holdings? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.