China Water Affairs Group (HKG:855) Is Due To Pay A Dividend Of HK$0.18

The board of China Water Affairs Group Limited (HKG:855) has announced that it will pay a dividend of HK$0.18 per share on the 17th of November. Including this payment, the dividend yield on the stock will be 5.5%, which is a modest boost for shareholders' returns.

View our latest analysis for China Water Affairs Group

China Water Affairs Group's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, China Water Affairs 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.

The next year is set to see EPS grow by 38.0%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was HK$0.05 in 2013, and the most recent fiscal year payment was HK$0.34. This means that it has been growing its distributions at 21% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

We Could See China Water Affairs Group's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. China Water Affairs Group has impressed us by growing EPS at 9.4% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for China Water Affairs Group's prospects of growing its dividend payments in the future.

Our Thoughts On China Water Affairs Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While China Water Affairs Group 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for China Water Affairs Group (1 is concerning!) 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.