Unimech Group Berhad's (KLSE:UNIMECH) Dividend Is Being Reduced To MYR0.022

Unimech Group Berhad's (KLSE:UNIMECH) dividend is being reduced from last year's payment covering the same period to MYR0.022 on the 30th of July. Despite the cut, the dividend yield of 3.3% 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

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, Unimech Group Berhad's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

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 36%, which is definitely feasible to continue.

View our latest analysis for Unimech Group Berhad

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from MYR0.045 total annually to MYR0.047. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Unimech Group Berhad's earnings per share has fallen at approximately 2.7% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

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. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Unimech Group Berhad that investors need to be conscious of moving forward. 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.