Yahoo Finance Does Duxton Water Limited (ASX:D2O) Have A Place In Your Dividend Stock Portfolio?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Recently, Duxton Water Limited (ASX:D2O) has started paying dividends to shareholders. Today it yields 3.8%. Does Duxton Water tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Duxton Water
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Does it pay an annual yield higher than 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share amount increased over the past?
Is is able to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
How well does Duxton Water fit our criteria?
The current trailing twelve-month payout ratio for D2O is 150%, which means that the dividend is not well-covered by its earnings. Going forward, analysts expect D2O’s payout to reduce to 102% of its earnings, which leads to a dividend yield of around 3.7%. However, EPS should increase to A$0.044, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Duxton Water as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether D2O one as a stable dividend player.
Relative to peers, Duxton Water has a yield of 3.8%, which is high for Water Utilities stocks but still below the market’s top dividend payers.
Next Steps:
After digging a little deeper into Duxton Water’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for D2O’s future growth? Take a look at our free research report of analyst consensus for D2O’s outlook.
Historical Performance: What has D2O’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
