United Plantations Berhad's (KLSE:UTDPLT) Upcoming Dividend Will Be Larger Than Last Year's

The board of United Plantations Berhad (KLSE:UTDPLT) has announced that it will be increasing its dividend on the 3rd of December to RM0.30. This takes the dividend yield from 5.7% to 6.7%, which shareholders will be pleased with.

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. Prior to this announcement, United Plantations Berhad's dividend was only 40% of earnings, however it was paying out 95% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS could expand by 10.1% if the company continues along the path it has been on recently. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from RM0.20 in 2011 to the most recent annual payment of RM0.80. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. United Plantations Berhad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. United Plantations Berhad has seen EPS rising for the last five years, at 10% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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