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

Unimech Group Berhad (KLSE:UNIMECH) has announced that on 30th of July, it will be paying a dividend ofMYR0.022, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 3.4% will still be comparable to other companies in the industry.

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Unimech Group Berhad's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Unimech Group Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 0.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

Check out 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. The annual payment during the last 10 years was MYR0.06 in 2015, and the most recent fiscal year payment was MYR0.047. The dividend has shrunk at around 2.4% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Unimech Group Berhad May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Unimech 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 Unimech Group Berhad's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. However, there are other things to consider for investors when analysing stock performance. 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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