UMS Integration Limited (SGX:558) has announced that it will pay a dividend of SGD0.01 per share on the 28th of October. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.
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We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, UMS Integration’s dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 213% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
The next year is set to see EPS grow by 66.6%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.
See our latest analysis for UMS Integration
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 2015, the dividend has gone from SGD0.0384 total annually to SGD0.052. This implies that the company grew its distributions at a yearly rate of about 3.1% 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.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. UMS Integration hasn’t seen much change in its earnings per share over the last five years.
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn’t the best. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 1 warning sign for UMS Integration that investors should know about before committing capital to this stock. Is UMS Integration not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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