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United-Guardian, Inc.'s (NASDAQ:UG) dividend is being reduced by 23% to US$0.37 per share on 1st of June. The yield is still above the industry average at 6.0%.
Check out our latest analysis for United-Guardian
United-Guardian Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
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. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 99% over the next year.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$0.88 in 2012, and the most recent fiscal year payment was US$1.13. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
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. United-Guardian has impressed us by growing EPS at 10% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
The Dividend Could Prove To Be Unreliable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. Strong earnings growth means United-Guardian has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for United-Guardian (1 is concerning!) 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.