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United Overseas Bank Limited (SGX:U11) will increase its dividend from last year's comparable payment on the 18th of August to SGD0.85. This takes the dividend yield to 5.7%, which shareholders will be pleased with.
Check out our latest analysis for United Overseas Bank
United Overseas Bank's Payment Expected To Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.
Having distributed dividends for at least 10 years, United Overseas Bank has a long history of paying out a part of its earnings to shareholders. Based on United Overseas Bank's last earnings report, the payout ratio is at a decent 49%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Over the next 3 years, EPS is forecast to expand by 18.9%. Analysts forecast the future payout ratio could be 50% over the same time horizon, which is a number we think the company can maintain.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was SGD0.60, compared to the most recent full-year payment of SGD1.70. This means that it has been growing its distributions at 11% per annum over that time. United Overseas Bank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
We Could See United Overseas Bank's Dividend Growing
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. United Overseas Bank has impressed us by growing EPS at 8.2% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
United Overseas Bank Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for United Overseas Bank that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.