United Overseas Bank (SGX:U11) Will Pay A Dividend Of SGD0.85

The board of United Overseas Bank Limited (SGX:U11) has announced that it will pay a dividend of SGD0.85 per share on the 9th of May. This will take the dividend yield to an attractive 5.8%, providing a nice boost to shareholder returns.

See our latest analysis for United Overseas Bank

United Overseas Bank's Payment Expected To Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much.

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.

Over the next 3 years, EPS is forecast to expand by 10.3%. 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 2014, the dividend has gone from SGD0.60 total annually to SGD1.70. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. United Overseas Bank 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 Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that United Overseas Bank has grown earnings per share at 7.8% per 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. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for United Overseas Bank that investors should take into consideration. Is United Overseas Bank 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.