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China Everbright Water Limited (SGX:U9E) will pay a dividend of HK$0.0105 on the 11th of September. The yield is still above the industry average at 8.6%.
See our latest analysis for China Everbright Water
China Everbright Water's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. China Everbright Water is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
If the trend of the last few years continues, EPS will grow by 8.0% over the next 12 months. If the dividend continues on this path, the payout ratio could be 5.7% by next year, which we think can be pretty sustainable going forward.
China Everbright Water's Dividend Has Lacked Consistency
It's comforting to see that China Everbright Water has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from HK$0.0187 total annually to HK$0.124. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
China Everbright Water Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that China Everbright Water has grown earnings per share at 8.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Our Thoughts On China Everbright Water's Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
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. For example, we've identified 2 warning signs for China Everbright Water (1 is a bit concerning!) that you should be aware of before investing. Is China Everbright Water not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.