Duxton Water (ASX:D2O) Is Increasing Its Dividend To AU$0.032

The board of Duxton Water Limited (ASX:D2O) has announced that the dividend on 29th of April will be increased to AU$0.032, which will be 6.7% higher than last year. This takes the dividend yield to 4.1%, which shareholders will be pleased with.

View our latest analysis for Duxton Water

Duxton Water's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Duxton Water was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

If the company can't turn things around, EPS could fall by 5.7% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 91% in the next 12 months which is on the higher end of the range we would say is sustainable.

Duxton Water Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The first annual payment during the last 4 years was AU$0.023 in 2018, and the most recent fiscal year payment was AU$0.064. This means that it has been growing its distributions at 29% per annum over that time. Duxton Water has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Duxton Water has seen earnings per share falling at 5.7% per year over the last three years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Duxton Water's Dividend

Overall, we always like to see the dividend being raised, but we don't think Duxton Water will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Duxton Water is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 2 warning signs for Duxton Water you should be aware of, and 1 of them is a bit concerning. Is Duxton Water not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.