UMS-Neiken Group Berhad (KLSE:UMSNGB) Has Re-Affirmed Its Dividend Of RM0.03

The board of UMS-Neiken Group Berhad (KLSE:UMSNGB) has announced that it will pay a dividend of RM0.03 per share on the 31st of March. The dividend yield will be 2.9% based on this payment which is still above the industry average.

See our latest analysis for UMS-Neiken Group Berhad

UMS-Neiken Group Berhad's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, UMS-Neiken Group Berhad was paying only paying out a fraction of earnings, but the payment was a massive 103% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 0.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

UMS-Neiken Group Berhad Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from RM0.011 to RM0.03. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, UMS-Neiken Group Berhad's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On UMS-Neiken Group Berhad's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While UMS-Neiken Group Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, UMS-Neiken Group Berhad has 2 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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.