United Overseas Bank's (SGX:U11) Dividend Will Be SGD0.85

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 6.0%, providing a nice boost to shareholder returns.

View our latest analysis for United Overseas Bank

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

United Overseas Bank has established itself as a dividend paying company with over 10 years history of distributing 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 12.7% over the next 3 years. Analysts estimate the future payout ratio will be 49% 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. The dividend has gone from an annual total of SGD0.60 in 2014 to the most recent total annual payment of SGD1.70. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

United Overseas Bank Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. United Overseas Bank has impressed us by growing EPS 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, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for United Overseas Bank that investors should know about before committing capital to this stock. 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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