United Foods Company (PSC) (DFM:UFC) Will Pay A Larger Dividend Than Last Year At AED1.00

The board of United Foods Company (PSC) (DFM:UFC) has announced that it will be paying its dividend of AED1.00 on the 1st of January, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 7.7%, providing a nice boost to shareholder returns.

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United Foods Company (PSC)'s Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Earnings per share could rise by 3.3% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to the balance sheet.

See our latest analysis for United Foods Company (PSC)

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of AED0.0909 in 2015 to the most recent total annual payment of AED1.00. This means that it has been growing its distributions at 27% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. So the company has struggled to grow its EPS yet it's still paying out 98% of its earnings. This gives limited room for the company to raise the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think United Foods Company (PSC)'s payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for United Foods Company (PSC) that you should be aware of before investing. Is United Foods Company (PSC) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.