Unimech Group Berhad (KLSE:UNIMECH) Is Increasing Its Dividend To MYR0.042

Unimech Group Berhad (KLSE:UNIMECH) will increase its dividend from last year's comparable payment on the 27th of July to MYR0.042. This makes the dividend yield 3.9%, which is above the industry average.

View our latest analysis for Unimech Group Berhad

Unimech Group Berhad's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Unimech Group Berhad was paying a whopping 171% as a dividend, but this only made up 30% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 17.3% 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 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was MYR0.06, compared to the most recent full-year payment of MYR0.062. Dividend payments have grown at less than 1% a year over this period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Unimech Group Berhad has been growing its earnings per share at 17% a year over the past five years. Unimech Group Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Unimech Group Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Unimech Group Berhad's payments are rock solid. While Unimech Group Berhad is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Unimech Group Berhad that investors should take into consideration. 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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