Yahoo Finance Duxton Water's (ASX:D2O) Dividend Will Be Increased To A$0.036
Duxton Water Limited (ASX:D2O) will increase its dividend on the 26th of April to A$0.036, which is 5.9% higher than last year's payment from the same period of A$0.034. This takes the dividend yield to 4.7%, which shareholders will be pleased with.
See our latest analysis for Duxton Water
Duxton Water Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
Over the next year, EPS is forecast to expand by 79.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 102%, which is a bit high and could start applying pressure to the balance sheet.
Duxton Water Doesn't Have A Long Payment History
It is great to see that Duxton Water has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 7 years was A$0.023 in 2017, and the most recent fiscal year payment was A$0.072. This means that it has been growing its distributions at 18% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Duxton Water's earnings per share has shrunk at 13% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We should note that Duxton Water has issued stock equal to 30% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
We're Not Big Fans Of Duxton Water's Dividend
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Duxton Water (of which 2 don't sit too well with us!) you should know about. Is Duxton Water not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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