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

United Overseas Bank Limited (SGX:U11) will increase its dividend from last year's comparable payment on the 18th of August to SGD0.85. This makes the dividend yield 5.7%, which is above the industry average.

View our latest analysis for United Overseas Bank

United Overseas Bank's Dividend Forecasted To Be Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

United Overseas Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but United Overseas Bank's payout ratio of 49% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 18.7% 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

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of SGD0.60 in 2013 to the most recent total annual payment of SGD1.70. This means that it has been growing its distributions at 11% per annum over that time. 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.

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. United Overseas Bank has impressed us by growing EPS at 8.2% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

United Overseas Bank Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 United Overseas Bank that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.