United Plantations Berhad's (KLSE:UTDPLT) Dividend Will Be Increased To RM0.85

The board of United Plantations Berhad (KLSE:UTDPLT) has announced that it will be increasing its dividend on the 18th of May to RM0.85. This makes the dividend yield 7.6%, which is above the industry average.

Check out our latest analysis for United Plantations Berhad

United Plantations Berhad's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, United Plantations Berhad was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

EPS is set to grow by 9.5% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 91% which is a bit high but can definitely be sustainable.

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 2012, the first annual payment was RM0.45, compared to the most recent full-year payment of RM0.80. This works out to be a compound annual growth rate (CAGR) of approximately 5.9% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

United Plantations Berhad Could Grow Its Dividend

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 9.5% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While United Plantations Berhad is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think United Plantations Berhad is a great stock to add to your portfolio if income is your focus.

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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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.