United Overseas Bank Limited (SGX:U11) the dividend will increase to S$0.60 on May 13. This brings the annual payout to 3.8% of the current share price, which is within the industry average.
Check out our latest analysis for United Overseas Bank
United Overseas Bank revenue easily covers distributions
We like to see a healthy dividend yield, but that only helps us if the payout can continue. Prior to making the announcement, United Overseas Bank was earning enough to cover the dividend, but generating no free cash flow. The absence of cash flow could definitely make it difficult to return cash to shareholders, or at least mean that the balance sheet will be under pressure.
Next year is expected to see EPS increase by 12.2%. If the dividend continues to follow recent trends, we estimate the payout ratio to be 48%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. Since 2012, the dividend has increased from S$0.60 to S$1.20. This equates to a compound annual growth rate (CAGR) of approximately 7.2% per year during this period. We like to see dividends growing at a reasonable pace, but with at least a substantial reduction in payouts, we’re not sure this dividend stock would be ideal for someone who intends to live on income.
We could see the United Overseas Bank dividend increase
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. We are encouraged to see that United Overseas Bank has increased its earnings per share by 5.2% per year over the past five years. The lack of cash flow, however, makes us a little cautious, especially regarding the future of the dividend.
Overall, we still like to see the dividend increase, but we don’t think United Overseas Bank will make a big revenue stock. With no cash flow, it’s hard to see how the company can sustain a dividend payment. This company is not in the high end of income providing stocks.
Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 1 warning sign for United Overseas Bank that investors should be aware of going forward. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.
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