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United Overseas Insurance Limited (SGX:U13) will pay a dividend of SGD0.085 on the 15th of August. Based on this payment, the dividend yield will be 2.9%, which is fairly typical for the industry.
Check out our latest analysis for United Overseas Insurance
United Overseas Insurance's Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, United Overseas Insurance was paying only paying out a fraction of earnings, but the payment was a massive 134% of 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.
EPS is set to fall by 0.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 42%, which we are pretty comfortable with and we think is feasible on an earnings basis.
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 annual payment back then was SGD0.15, compared to the most recent full-year payment of SGD0.21. This means that it has been growing its distributions at 3.4% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend's Growth Prospects Are Limited
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. United Overseas Insurance hasn't seen much change in its earnings per share over the last five years.
United Overseas Insurance's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for United Overseas Insurance you should be aware of, and 1 of them makes us a bit uncomfortable. Is United Overseas Insurance not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.