China Everbright Water (SGX:U9E) Will Pay A Larger Dividend Than Last Year At S$0.012

The board of China Everbright Water Limited (SGX:U9E) has announced that it will be increasing its dividend on the 18th of May to S$0.012. This makes the dividend yield 7.2%, which is above the industry average.

View our latest analysis for China Everbright Water

China Everbright Water's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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 25.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 5.6% by next year, which we think can be pretty sustainable going forward.

China Everbright Water Doesn't Have A Long Payment History

It is great to see that China Everbright Water 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. The first annual payment during the last 6 years was HK$0.019 in 2016, and the most recent fiscal year payment was HK$0.13. This means that it has been growing its distributions at 37% 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 Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. China Everbright Water has impressed us by growing EPS at 26% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On China Everbright Water's Dividend

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 redeeming feature, this is offset by the minimal cash to cover the payments. We don't think China Everbright Water is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, China Everbright Water has 2 warning signs (and 1 which doesn't sit too well with us) we think 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.