China Everbright Water (SGX:U9E) Has Affirmed Its Dividend Of HK$0.0102

China Everbright Water Limited (SGX:U9E) will pay a dividend of HK$0.0102 on the 23rd of May. The dividend yield will be 8.6% based on this payment which is still above the industry average.

Our free stock report includes 2 warning signs investors should be aware of before investing in China Everbright Water. Read for free now.

China Everbright Water's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. China Everbright Water is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 3.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 6.6% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for China Everbright Water

China Everbright Water's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of HK$0.0187 in 2016 to the most recent total annual payment of HK$0.119. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.5% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, China Everbright Water has the option to increase the payout ratio to return more cash to shareholders.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about China Everbright Water's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think China Everbright Water is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 2 warning signs for China Everbright Water (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.