China Everbright Water (SGX:U9E) Is Due To Pay A Dividend Of HK$0.0099

China Everbright Water Limited's (SGX:U9E) investors are due to receive a payment of HK$0.0099 per share on 24th of May. This takes the dividend yield to 9.4%, which shareholders will be pleased with.

Check out our latest analysis for China Everbright Water

China Everbright Water's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, China Everbright Water 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.

If the trend of the last few years continues, EPS will grow by 10.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 5.7%, which is in the range that makes us comfortable with the sustainability of the dividend.

China Everbright Water's Dividend Has Lacked Consistency

Looking back, China Everbright Water's dividend hasn't been particularly consistent. 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$0.124. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Everbright Water has impressed us by growing EPS at 10% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think China Everbright Water's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for China Everbright Water you should be aware of, and 1 of them is a bit unpleasant. Is China Everbright Water not quite the opportunity you were looking for? Why not check out our selection of top 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.