The board of United Malacca Berhad (KLSE:UMCCA) has announced that it will pay a dividend of MYR0.05 per share on the 20th of January. This payment means the dividend yield will be 1.8%, which is below the average for the industry.

Check out our latest analysis for United Malacca Berhad

United Malacca Berhad's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, United Malacca Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 40.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 51%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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 2013, the dividend has gone from MYR0.26 total annually to MYR0.10. Doing the maths, this is a decline of about 9.1% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. If United Malacca Berhad is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On United Malacca Berhad's Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for United Malacca Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.