Watts International Maritime (HKG:2258) Is Paying Out A Larger Dividend Than Last Year

Watts International Maritime Company Limited (HKG:2258) has announced that it will be increasing its dividend on the 16th of August to HK$0.016, which will be 100% higher than last year. This makes the dividend yield about the same as the industry average at 4.6%.

See our latest analysis for Watts International Maritime

Watts International Maritime's Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Watts International Maritime was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, could fall by 34.6% if the company can't turn things around from the last few years. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 86%, meaning that most of the company's earnings is being paid out to shareholders.

Watts International Maritime's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2019, the dividend has gone from CN¥0.022 to CN¥0.013. This works out to a decline of approximately 40% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past three years, it looks as though Watts International Maritime's EPS has declined at around 35% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Watts International Maritime'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 Watts International Maritime is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 5 warning signs for Watts International Maritime (2 are significant!) that you should be aware of before investing. 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.