Duxton Water’s Debt Drop and Dividend Raise Questions on Future Market Risks
Duxton Water Limited has significantly reduced its debt and maintained steady dividends while navigating a challenging water market marked by dry conditions and rising lease yields.
- Repayment of $108 million debt reduces gearing to 5%
- 16th consecutive fully franked dividend paid at 3.71 cents per share
- Lease yields rise to approximately 5% per annum
- Water portfolio valued at $291 million with post-tax NAV of $1.65 per share
- On-market share buyback continues amid stable water prices
Operational and Financial Highlights
Duxton Water Limited (ASX – D2O) reported a robust June 2025 quarter, marked by key strategic milestones including the internalisation of management and a substantial debt reduction. The company repaid $108 million of debt during the quarter, bringing total debt down to $18 million and lowering its gearing ratio to a conservative 5%. This deleveraging effort was supported by entitlement sales settled at a premium to fair value, reflecting strong market demand.
Alongside debt reduction, Duxton Water maintained its commitment to shareholder returns by paying its 16th consecutive fully franked dividend of 3.71 cents per share in April 2025. The company also continued its on-market share buyback program, purchasing 1.46 million shares at an average price of $1.50, signaling confidence in the underlying value of its assets.
Portfolio and Market Conditions
The water portfolio value remained steady at approximately $291 million, with a post-tax net asset value (NAV) of $1.65 per share, slightly down by six cents due primarily to dividend payments and an early termination fee related to management internalisation. The company’s portfolio is diversified across key Australian catchments including the Lower and Upper Murray, Murrumbidgee, and Goulburn regions, with a lease percentage maintained at 52% as of July 1, 2025.
Market conditions during the quarter were influenced by dry weather and high temperatures in South Australia and Victoria, leading to increased water usage; the highest in over a decade in some catchments. This environment contributed to rising lease yields, which Duxton Water aims to sustain at around 5% per annum. Spot water prices remained relatively stable, ranging from $165 to $290 per megalitre depending on the region.
Liquidity and Debt Facility Adjustments
In a strategic move to reduce financing costs, Duxton Water lowered its maximum debt facility limit from $130 million to $40 million. The company’s net debt to water asset ratio dropped significantly from 28% to 5%, underscoring a strong liquidity position with available funding of $26.3 million. Despite operational cash outflows driven by tax payments and internalisation fees, investing cash flows were positive, supported by entitlement sales and selective acquisitions below market value.
Looking ahead, Duxton Water is actively pursuing new lease opportunities to increase its leased portfolio and is managing exposure to allocation market price fluctuations through forward sales contracts. The company’s strategic focus remains on providing flexible water supply solutions to Australian irrigators while maintaining financial discipline and shareholder value.
Bottom Line?
Duxton Water’s decisive debt reduction and rising lease yields position it well to navigate ongoing market volatility and deliver steady returns.
Questions in the middle?
- How will the internalisation of management impact Duxton Water’s operational efficiency and costs going forward?
- Can the company sustain or grow lease yields amid fluctuating water market conditions and climate variability?
- What are the prospects for further portfolio acquisitions or sales given current market valuations and liquidity?
