Beijing Enterprises Water Group (HKG:371) Has Announced That It Will Be Increasing Its Dividend To HK$0.09

The board of Beijing Enterprises Water Group Limited (HKG:371) has announced that it will be increasing its dividend by 7.1% on the 19th of October to HK$0.09. Based on the announced payment, the dividend yield for the company will be 5.3%, which is fairly typical for the industry.

See our latest analysis for Beijing Enterprises Water Group

Beijing Enterprises Water Group'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, Beijing Enterprises Water Group 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.

The next year is set to see EPS grow by 9.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Beijing Enterprises Water Group Is Still Building Its Track Record

It is great to see that Beijing Enterprises Water Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2012, the first annual payment was HK$0.03, compared to the most recent full-year payment of HK$0.16. This means that it has been growing its distributions at 21% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Beijing Enterprises Water Group has seen EPS rising for the last five years, at 5.5% per annum. Beijing Enterprises Water Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. To that end, Beijing Enterprises Water Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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