China Resources Gas Group Limited (HKG:1193) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase China Resources Gas Group's shares on or after the 12th of September will not receive the dividend, which will be paid on the 4th of November.

The company's next dividend payment will be HK$0.25 per share, on the back of last year when the company paid a total of HK$1.16 to shareholders. Looking at the last 12 months of distributions, China Resources Gas Group has a trailing yield of approximately 3.9% on its current stock price of HK$29.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether China Resources Gas Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for China Resources Gas Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China Resources Gas Group paid out 56% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 48% of its free cash flow in the past year.

It's positive to see that China Resources Gas Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that China Resources Gas Group's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, China Resources Gas Group has increased its dividend at approximately 18% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid China Resources Gas Group? Earnings per share have been flat and China Resources Gas Group's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in China Resources Gas Group for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with China Resources Gas Group and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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