China Everbright Water Limited (SGX:U9E) will increase its dividend from last year's comparable payment on the 8th of September to HK$0.0113. This will take the annual payment to 8.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for China Everbright Water

China Everbright Water's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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 10.4% 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

Looking back, China Everbright Water's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was HK$0.0187 in 2016, and the most recent fiscal year payment was HK$0.106. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that China Everbright Water has been growing its earnings per share at 10% a year over the past five years. China Everbright Water definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for China Everbright Water (1 is concerning!) that you should be aware of before investing. 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.