United U-LI Corporation Berhad (KLSE:ULICORP) Could Be A Buy For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that United U-LI Corporation Berhad (KLSE:ULICORP) is about to go ex-dividend in just 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, United U-LI Corporation Berhad investors that purchase the stock on or after the 10th of November will not receive the dividend, which will be paid on the 10th of December.

The company's upcoming dividend is RM00.02 a share, following on from the last 12 months, when the company distributed a total of RM0.09 per share to shareholders. Based on the last year's worth of payments, United U-LI Corporation Berhad stock has a trailing yield of around 6.5% on the current share price of RM01.39. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see United U-LI Corporation Berhad paying out a modest 35% of its earnings. A useful secondary check can be to evaluate whether United U-LI Corporation Berhad generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that United U-LI Corporation Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for United U-LI Corporation Berhad

Click here to see how much of its profit United U-LI Corporation Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see United U-LI Corporation Berhad's earnings have been skyrocketing, up 66% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, United U-LI Corporation Berhad has increased its dividend at approximately 1.2% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Should investors buy United U-LI Corporation Berhad for the upcoming dividend? United U-LI Corporation Berhad has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

So while United U-LI Corporation Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for United U-LI Corporation Berhad you should know about.

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