United Overseas Bank (SGX:U11) Is Increasing Its Dividend To SGD1.17

United Overseas Bank Limited (SGX:U11) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of May to SGD1.17. The payment will take the dividend yield to 4.8%, which is in line with the average for the industry.

See our latest analysis for United Overseas Bank

United Overseas Bank's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, United Overseas Bank has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but United Overseas Bank's payout ratio of 51% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 21.4% over the next 3 years. Analysts estimate the future payout ratio will be 50% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2015, the dividend has gone from SGD0.70 total annually to SGD1.84. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.

We Could See United Overseas Bank'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. It's encouraging to see that United Overseas Bank has been growing its earnings per share at 7.3% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On United Overseas Bank's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for United Overseas Bank that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.