UMS Integration (SGX:558) Will Pay A Dividend Of SGD0.01

UMS Integration Limited (SGX:558) has announced that it will pay a dividend of SGD0.01 per share on the 16th of December. This means the annual payment is 5.4% of the current stock price, which is above the average for the industry.

Check out our latest analysis for UMS Integration

UMS Integration's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, UMS Integration's dividend was only 34% of earnings, however it was paying out 138% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 43.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 62% by next year, which is in a pretty sustainable range.

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 SGD0.0256 total annually to SGD0.056. This implies that the company grew its distributions at a yearly rate of about 8.1% 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.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.7% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, UMS Integration has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. As an example, we've identified 2 warning signs for UMS Integration 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.