United Plantations Berhad (KLSE:UTDPLT) Is Increasing Its Dividend To MYR0.40

United Plantations Berhad (KLSE:UTDPLT) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of December to MYR0.40. This takes the dividend yield to 8.5%, which shareholders will be pleased with.

See our latest analysis for United Plantations Berhad

United Plantations Berhad Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 79% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 8.1% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 103%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of MYR0.50 in 2012 to the most recent total annual payment of MYR1.25. This means that it has been growing its distributions at 9.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. United Plantations Berhad has seen EPS rising for the last five years, at 8.1% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think United Plantations Berhad's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for United Plantations Berhad that investors should know about before committing capital to this stock. Is United Plantations Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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