United Overseas Insurance (SGX:U13) Will Pay A Dividend Of SGD0.085

The board of United Overseas Insurance Limited (SGX:U13) has announced that it will pay a dividend on the 18th of August, with investors receiving SGD0.085 per share. Based on this payment, the dividend yield will be 3.7%, which is fairly typical for the industry.

See our latest analysis for United Overseas Insurance

United Overseas Insurance's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 583% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 5.6% over the next 12 months if recent trends continue. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 84%, meaning that most of the company's earnings is being paid out to shareholders.

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 SGD0.15 in 2012, and the most recent fiscal year payment was SGD0.25. This means that it has been growing its distributions at 5.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Come By

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. In the last five years, United Overseas Insurance's earnings per share has shrunk at approximately 5.6% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

United Overseas Insurance's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about United Overseas Insurance's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. To that end, United Overseas Insurance has 2 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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