Watts International Maritime's (HKG:2258) Shareholders Will Receive A Bigger 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. The announced payment will take the dividend yield to 4.6%, which is in line with the average for the industry.

See our latest analysis for Watts International Maritime

Watts International Maritime's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Watts International Maritime's dividend was comfortably covered by both cash flow and earnings. 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 34.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 86%, which is definitely on the higher side.

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. 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. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Watts International Maritime's earnings per share has shrunk at 35% a year over the past three years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Watts International Maritime's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 3 warning signs for Watts International Maritime (1 is potentially serious!) 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.