Stock Analysis

United-Guardian (NASDAQ:UG) Will Pay A Smaller Dividend Than Last Year

  •  Updated
Source: Shutterstock

United-Guardian, Inc. (NASDAQ:UG) is reducing its dividend to US$0.37 on the 1st of Junewhich is 23% less than last year. The dividend yield of 6.0% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for United-Guardian

United-Guardian Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share could rise by 10.3% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 99%, which probably can't continue without starting to put some pressure on the balance sheet.

NasdaqGM:UG Historic Dividend May 15th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was US$0.88, compared to the most recent full-year payment of US$1.13. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

United-Guardian Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that United-Guardian has grown earnings per share at 10% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for United-Guardian (of which 1 is potentially serious!) you should know about. Is United-Guardian not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether United-Guardian is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About NasdaqGM:UG


United-Guardian, Inc. manufactures and markets cosmetic ingredients, pharmaceuticals, medical lubricants, and proprietary specialty industrial products in the United States and internationally The company offers cosmetic ingredients, including LUBRAJEL, a line of water-based gel formulation for sensory enhancement, lubrication, and texture to personal care products; LUBRAJEL NATURAL for skin moisturizing; LUBRAJEL MARINE that develops natural products using naturally derived polymers; LUBRAJEL OlL NATURAL, which makes luxuriant textures without adding viscosity; LUBRAJEL TERRA, a multifunctional, moisturizing hydrogel products; LUBRASIL II SB, a formulation of LUBRAJEL; LUBRAJEL II XD; B-122, a powdered lubricant used in the manufacture of pressed powders, eyeliners, rouges, and industrial products; and ORCHID COMPLEX, an oil-soluble base for extract of fresh orchids used in fragrance products, such as perfumes and toiletries.

Flawless balance sheet with acceptable track record.