Watts International Maritime (HKG:2258) Is Increasing Its Dividend To HK$0.016

The board of Watts International Maritime Company Limited (HKG:2258) has announced that the dividend on 16th of August will be increased to HK$0.016, which will be 100% higher than last year. The announced payment will take the dividend yield to 5.0%, which is in line with the average for the industry.

Check out our latest analysis for Watts International Maritime

Watts International Maritime's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Watts International Maritime was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 34.6% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 86% in the next 12 months which is on the higher end of the range we would say is sustainable.

Watts International Maritime's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from CN¥0.022 in 2019 to the most recent annual payment of CN¥0.013. Dividend payments have fallen sharply, down 40% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Watts International Maritime's EPS has fallen by approximately 35% per year during the past three years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Watts International Maritime will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Watts International Maritime (2 don't sit too well with us!) 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.