Duxton Water (ASX:D2O) Will Pay A Larger Dividend Than Last Year At A$0.0372

Duxton Water Limited's (ASX:D2O) periodic dividend will be increasing on the 31st of October to A$0.0372, with investors receiving 0.5% more than last year's A$0.037. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.

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Estimates Indicate Duxton Water's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Duxton Water was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to fall by 65.5%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 138%, which is definitely a bit high to be sustainable going forward.

See our latest analysis for Duxton Water

Duxton Water Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 8 years was A$0.023 in 2017, and the most recent fiscal year payment was A$0.0742. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Duxton Water has impressed us by growing EPS at 104% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Duxton Water could prove to be a strong dividend payer.

Duxton Water Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Duxton Water that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.