United Plantations Berhad (KLSE:UTDPLT) Is Paying Out A Dividend Of MYR0.74

United Plantations Berhad (KLSE:UTDPLT) will pay a dividend of MYR0.74 on the 9th of May. This makes the dividend yield 5.0%, which will augment investor returns quite nicely.

We've discovered 1 warning sign about United Plantations Berhad. View them for free.

United Plantations Berhad's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, United Plantations Berhad's dividend was only 64% of earnings, however it was paying out 126% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 20.3% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 119%, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for United Plantations Berhad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.392, compared to the most recent full-year payment of MYR1.14. This means that it has been growing its distributions at 11% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. It's encouraging to see that United Plantations Berhad has been growing its earnings per share at 20% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about United Plantations Berhad's payments, as there could be some issues with sustaining them into the future. While United Plantations Berhad is earning enough to cover the payments, the cash flows are lacking. 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. Taking the debate a bit further, we've identified 1 warning sign for United Plantations Berhad that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.