Duxton Water (ASX:D2O) Is Increasing Its Dividend To A$0.035
Duxton Water Limited's (ASX:D2O) periodic dividend will be increasing on the 27th of October to A$0.035, with investors receiving 6.1% more than last year's A$0.033. This will take the annual payment to 4.2% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Duxton Water
Duxton Water Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the dividend made up 97% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Earnings per share could rise by 11.0% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 120%, which probably can't continue without starting to put some pressure on the balance sheet.
Duxton Water Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 6 years was A$0.023 in 2017, and the most recent fiscal year payment was A$0.07. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Duxton Water's Dividend Might Lack Growth
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Duxton Water has seen EPS rising for the last five years, at 11% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.
An additional note is that the company has been raising capital by issuing stock equal to 29% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Duxton Water's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.
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. To that end, Duxton Water has 4 warning signs (and 2 which don't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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