ONE Gas, Inc. (NYSE:OGS) will increase its dividend on the 7th of March to $0.67, which is 1.5% higher than last year's payment from the same period of $0.66. Based on this payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

View our latest analysis for ONE Gas

ONE Gas' Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, ONE Gas' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 20.6%. If the dividend continues on this path, the payout ratio could be 63% by next year, which we think can be pretty sustainable going forward.

ONE Gas Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.12 total annually to $2.64. This works out to be a compound annual growth rate (CAGR) of approximately 9.0% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

ONE Gas May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 2.3% a year for the past five years, which isn't massive but still better than seeing them shrink. ONE Gas is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think ONE Gas will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think ONE Gas is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, ONE Gas has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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