Duxton Water (ASX:D2O) Has Announced That It Will Be Increasing Its Dividend To A$0.0371

The board of Duxton Water Limited (ASX:D2O) has announced that it will be increasing its dividend by 3.1% on the 24th of April to A$0.0371, up from last year's comparable payment of A$0.036. This makes the dividend yield 5.5%, which is above the industry average.

View our latest analysis for Duxton Water

Duxton 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. Before making this announcement, Duxton Water was paying a whopping 192% as a dividend, but this only made up 2.9% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to grow by 37.3% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 93% which is a bit high but can definitely be sustainable.

Duxton Water Doesn't Have A Long Payment History

It is great to see that Duxton Water has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 7 years was A$0.023 in 2018, and the most recent fiscal year payment was A$0.074. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Duxton Water May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Duxton Water hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Duxton Water will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Duxton Water is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Duxton Water you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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