Unimech Group Berhad (KLSE:UNIMECH) Is Reducing Its Dividend To MYR0.022

Unimech Group Berhad (KLSE:UNIMECH) is reducing its dividend from last year's comparable payment to MYR0.022 on the 30th of July. However, the dividend yield of 3.3% still remains in a typical range for the industry.

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Unimech Group Berhad's Future Dividend Projections Appear Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Unimech Group Berhad was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 2.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 37%, which is definitely feasible to continue.

See our latest analysis for Unimech Group Berhad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.045, compared to the most recent full-year payment of MYR0.047. Its dividends have grown at less than 1% per annum over this time frame. 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's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Unimech Group Berhad's earnings per share has shrunk at approximately 2.7% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Unimech Group Berhad's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 2 warning signs for Unimech Group Berhad that you should be aware of before investing. Is Unimech Group Berhad 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.