UMS Holdings Berhad (KLSE:UMS) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy UMS Holdings Berhad (KLSE:UMS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase UMS Holdings Berhad's shares before the 9th of September in order to be eligible for the dividend, which will be paid on the 23rd of September.

The company's next dividend payment will be RM00.135 per share, and in the last 12 months, the company paid a total of RM0.10 per share. Based on the last year's worth of payments, UMS Holdings Berhad stock has a trailing yield of around 4.0% on the current share price of RM02.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether UMS Holdings Berhad can afford its dividend, and if the dividend could grow.

View our latest analysis for UMS Holdings Berhad

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UMS Holdings Berhad paid out a comfortable 28% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit UMS Holdings Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see UMS Holdings Berhad earnings per share are up 8.2% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. UMS Holdings Berhad's dividend payments are broadly unchanged compared to where they were 10 years ago.

To Sum It Up

Has UMS Holdings Berhad got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and UMS Holdings Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but UMS Holdings Berhad is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about UMS Holdings Berhad, and we would prioritise taking a closer look at it.

While it's tempting to invest in UMS Holdings Berhad for the dividends alone, you should always be mindful of the risks involved. For example - UMS Holdings Berhad has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.