United Overseas Bank's (SGX:U11) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of United Overseas Bank Limited (SGX:U11) has announced that it will be paying its dividend of SGD0.75 on the 12th of May, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 5.0%, which is in line with the average for the industry.

View our latest analysis for United Overseas Bank

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

Unless the payments are sustainable, the dividend yield doesn't mean too much.

United Overseas Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 50%, which means that United Overseas Bank would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 39.7%. Analysts estimate the future payout ratio will be 48% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was SGD0.60 in 2013, and the most recent fiscal year payment was SGD1.50. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. 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.

We Could See United Overseas Bank's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. United Overseas Bank has impressed us by growing EPS at 6.5% 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.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for United Overseas Bank (1 is concerning!) 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 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.