Unimech Group Berhad (KLSE:UNIMECH) will pay a dividend of MYR0.025 on the 30th of December. Based on this payment, the dividend yield for the company will be 3.9%, which is fairly typical for the industry.
Check out our latest analysis for Unimech Group Berhad
Unimech Group Berhad's Payment Could Potentially Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Unimech Group Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share could rise by 6.4% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.06 in 2014 to the most recent total annual payment of MYR0.059. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Growth Potential
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. It's encouraging to see that Unimech Group Berhad has been growing its earnings per share at 6.4% a year over the past five years. Unimech Group Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On Unimech Group Berhad's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Unimech Group Berhad's payments are rock solid. While Unimech Group Berhad is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Unimech Group Berhad 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.