Why You Might Be Interested In Unimech Group Berhad (KLSE:UNIMECH) For Its Upcoming Dividend

Unimech Group Berhad (KLSE:UNIMECH) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 11th of December in order to be eligible for this dividend, which will be paid on the 29th of December.

Unimech Group Berhad's next dividend payment will be RM0.015 per share, on the back of last year when the company paid a total of RM0.045 to shareholders. Last year's total dividend payments show that Unimech Group Berhad has a trailing yield of 3.3% on the current share price of MYR1.35. If you buy this business for its dividend, you should have an idea of whether Unimech Group Berhad's dividend is reliable and sustainable. So we need to investigate whether Unimech Group Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Unimech Group Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Unimech Group Berhad's payout ratio is modest, at just 31% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Unimech Group Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Unimech Group Berhad's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Unimech Group Berhad has increased its dividend at approximately 2.0% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Unimech Group Berhad? Earnings per share have been flat over this time, but we're intrigued to see that Unimech Group Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Unimech Group Berhad is halfway there. There's a lot to like about Unimech Group Berhad, and we would prioritise taking a closer look at it.

In light of that, while Unimech Group Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Unimech Group Berhad you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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