Water Oasis Group Limited (HKG:1161) has announced it will be reducing its dividend payable on the 2nd of July to HK$0.055. However, the dividend yield of 3.6% is still a decent boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Water Oasis Group's stock price has increased by 108% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Water Oasis Group's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 88% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS could expand by 11.1% if the company continues along the path it has been on recently. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 87%, which is on the higher side, but certainly still feasible.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from HK$0.13 in 2011 to the most recent annual payment of HK$0.11. The dividend has shrunk at around 1.7% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Water Oasis Group's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Water Oasis Group has been growing its earnings per share at 11% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On Water Oasis Group's Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 5 warning signs for Water Oasis Group that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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