One of my favourite dividend shares has just announced it is forecasting growing dividends to March 2022.
That business is Duxton Water Ltd (ASX: D2O). It’s a unique company that’s building a portfolio of water entitlements across the southern Murray Darling Basin. It then leases that water to farmers, through long-term leases and both spot and forward contract allocation sales.
The Duxton Water share price is up over 1% in response to the news this morning.
Today, it announced the execution of a new water lease arrangement starting 1 July 2020. This will take the leased portion of the permanent water portfolio to 66%, generating $9.5 million of annualised leasing revenue from 1 July 2020.
Duxton Water has a weighted average lease expiry (WALE) of 2.9 years with 5.2 years inclusive of renewal options. This WALE provides a lot of medium-term certainty for the dividend share.
Duxton Water’s dividend share credentials
The Board of the company doesn’t foresee any significant impacts from the coronavirus. Firstly, the company has reaffirmed the intention to pay a 2.9 per share fully franked dividend in September. Then a fully franked 3 cent dividend in March 2021.
Today, thanks to the forward visibility of lease revenue, Duxton Water announced a dividend target of 3.1 cents to be paid in September 2021 and a further target of 3.2 cents to be paid in March 2022. That’s two years of dividends pencilled in. Great news for people looking for a reliable dividend share.
At the current Duxton Water share price the next 12 months of dividends amounts to a grossed-up dividend yield of 6.4%. The dividends in the subsequent 12 months amounts to a grossed-up dividend yield of 6.75%.
Is the Duxton Water share price a buy?
Duxton Water has increased its dividend every six months since November 2017. I think it could be one of the best dividend shares on the ASX over the next two years. Many others are cutting their dividends. It’s currently trading at a discount of around 20% to its pre-tax NTA and a 28% discount to the post-tax NTA. I’d be happy to buy a few shares today.
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Returns As of 6th October 2020
Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO. The Motley Fool Australia has recommended DUXTON FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.