Beijing Enterprises Water Group (HKG:371) Is Increasing Its Dividend To HK$0.09

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

View our latest analysis for Beijing Enterprises Water Group

Beijing Enterprises Water Group's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Beijing Enterprises Water Group's earnings easily covered the dividend, but free cash flows were negative. 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, earnings per share is forecast to rise by 8.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

Beijing Enterprises Water Group Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. The first annual payment during the last 9 years was HK$0.03 in 2012, and the most recent fiscal year payment was HK$0.16. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Beijing Enterprises Water Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

We Could See Beijing Enterprises Water Group's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Beijing Enterprises Water Group has grown earnings per share at 5.5% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Beijing Enterprises Water Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Beijing Enterprises Water Group 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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Beijing Enterprises Water Group you should be aware of, and 1 of them is a bit unpleasant. 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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