UMS Integration Limited's( SGX:558 ) investors are due to receive a payment of SGD0.01 per share on 17th of December. Based on this payment, the dividend yield will be 3.6%, which is fairly typical for the industry.
UMS Integration's Payment Could Potentially Have Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, UMS Integration's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.
Over the next year, EPS is forecast to expand by 74.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 52% which brings it into quite a comfortable range.
View our latest analysis for UMS Integration
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. The annual payment during the last 10 years was SGD0.0384 in 2015, and the most recent fiscal year payment was SGD0.052. This means that it has been growing its distributions at 3.1% per annum over that time. 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.
The Dividend's Growth Prospects Are Limited
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. It's not great to see that UMS Integration's earnings per share has fallen at approximately 2.5% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
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 track record isn't great, and the payments are a bit high to be considered sustainable. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for UMS Integration that investors should take into consideration. 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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