The small ASX dividend share Duxton Water Ltd (ASX: D2O) has a lot to offer investors focused on dividend income, in my view.
The business has built up a portfolio of permanent water entitlements and provide flexible water supply solutions to Australian farmers. That includes long-term entitlement leases, forward allocation contracts and spot allocation supply.
I like that this business is an effective way to indirectly invest in the Australian agricultural sector, with less volatility.
The small ASX dividend share is appealing to me because of three factors.
Dividend credentials
Impressively, the business has grown its half-year dividend every half-year result since November 2017.
The last two declared dividends come to a total of 7.41 cents per share, which translates into a grossed-up dividend yield of 6.8%, including franking credits.
I believe that's a solid starting point for the dividend yield and could grow in the coming years if water prices increase (or at least remain stable).
Asset discount
Every month, Duxton Water tells investors about what its underlying value is, both on a pre-tax and post-tax basis. I'll refer to the post-tax figure as it's the lower number.
At 31 March 2025, the small ASX dividend share had a post-tax net asset value of $1.71 per share. That means the current Duxton Water share price is trading at a discount of more than 9%.
While that's not a huge discount, I think it reflects a good point to buy, particularly if Australia's weather turns drier in the medium-term (rather than experiencing three La Ninas (wetter conditions) in a row as we saw between 2020 to 2023).
Management internalisation
The company is working on internalising its management team and operational functions. This will remove the requirement to pay external management and performance fees, and provide the small ASX dividend share with greater control over its personnel and operations.
The ongoing annual costs of an internal management structure are expected to be lower than the current fees paid to the investment manager.
I think this move makes the business more attractive as a long-term investment and could mean stronger long-term net returns by the company for investors.
