United Plantations Berhad (KLSE:UTDPLT) Is Increasing Its Dividend To MYR1.00

United Plantations Berhad (KLSE:UTDPLT) will increase its dividend from last year's comparable payment on the 17th of May to MYR1.00. This makes the dividend yield 8.5%, which is above the industry average.

See our latest analysis for United Plantations Berhad

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 76% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share could rise by 8.9% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 117%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from MYR0.625 total annually to MYR1.40. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. 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.

We Could See United Plantations Berhad's Dividend Growing

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. United Plantations Berhad has seen EPS rising for the last five years, at 8.9% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On United Plantations Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 1 warning sign for United Plantations Berhad that you should be aware of before investing. 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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