The board of Uchi Technologies Berhad (KLSE:UCHITEC) has announced that it will pay a dividend on the 24th of December, with investors receiving MYR0.045 per share. The yield is still above the industry average at 8.0%.
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Based on the last payment, the company wasn’t making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to expand by 24.8%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 108% over the next year.
See our latest analysis for Uchi Technologies Berhad
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2015, the annual payment back then was MYR0.0909, compared to the most recent full-year payment of MYR0.245. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Uchi Technologies Berhad has only grown its earnings per share at 4.3% per annum over the past five years. The earnings growth is anaemic, and the company is paying out 125% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.
Overall, it’s not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments are bit high to be considered sustainable, and the track record isn’t the best. We don’t think Uchi Technologies Berhad is a great stock to add to your portfolio if income is your focus.
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 Uchi Technologies Berhad that investors should know about before committing capital to this stock. 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.
