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China Everbright Water Limited (SGX:U9E) has announced that it will pay a dividend of HK$0.0102 per share on the 23rd of May. The dividend yield will be 8.4% based on this payment which is still above the industry average.
China Everbright Water's Payment Could Potentially Have Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, China Everbright Water's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
If the trend of the last few years continues, EPS will grow by 3.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 6.6%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for China Everbright Water
China Everbright Water's Dividend Has Lacked Consistency
Looking back, China Everbright Water's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of HK$0.0187 in 2016 to the most recent total annual payment of HK$0.119. This means that it has been growing its distributions at 23% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
China Everbright Water May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 3.5% per year. While growth may be thin on the ground, China Everbright Water could always pay out a higher proportion of earnings to increase shareholder returns.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about China Everbright Water's payments, as there could be some issues with sustaining them into the future. While China Everbright Water is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, China Everbright Water 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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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.