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The board of China Everbright Water Limited (SGX:U9E) has announced that it will pay a dividend on the 23rd of May, with investors receiving HK$0.0102 per share. This means the annual payment is 8.6% of the current stock price, which is above the average for the industry.
View our latest analysis for China Everbright Water
China Everbright Water's Future Dividend Projections Appear Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, China Everbright Water was earning enough to cover the dividend, but free cash flows weren't positive. 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 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.
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. This makes us cautious about the consistency of the dividend over a full economic cycle. 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. China Everbright Water has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, China Everbright Water could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On China Everbright Water's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While China Everbright Water is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.