Uchi Technologies Berhad (KLSE:UCHITEC) Will Pay A Larger Dividend Than Last Year At RM0.11

Uchi Technologies Berhad (KLSE:UCHITEC) has announced that it will be increasing its dividend on the 21st of July to RM0.11. This makes the dividend yield 6.6%, which is above the industry average.

View our latest analysis for Uchi Technologies Berhad

Uchi Technologies Berhad Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 99% of what it was earning and 93% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Over the next year, EPS is forecast to expand by 5.2%. 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 1 cut in the last 10 years. The dividend has gone from RM0.11 in 2012 to the most recent annual payment of RM0.20. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% 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.

Uchi Technologies Berhad May Have Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Uchi Technologies Berhad has grown earnings per share at 8.6% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

Uchi Technologies Berhad's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Uchi Technologies Berhad's payments are rock solid. Strong earnings growth means Uchi Technologies Berhad has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Uchi Technologies Berhad that investors need to be conscious of moving forward. Is Uchi Technologies 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.