Readers wishing to buy United electronics company (TADAWUL: 4003) for its dividend will have to make its move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy United Electronics shares before July 25 in order to be eligible for the dividend, which will be paid on August 5.
The company’s upcoming dividend is 2.00 per share, following on from the past 12 months when the company has distributed a total of 3.00 per share to shareholders. Calculating the value of last year’s payouts shows United Electronics has a rolling 3.0% return on SAR135’s current share price. Dividends are an important source of income for many shareholders, but the health of the business is critical to sustaining those dividends. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
Check out our latest review for United Electronics
Dividends are usually paid out of the company’s profits, so if a company pays more than it earned, its dividend is usually at risk of being reduced. United Electronics paid 53% of its profits to investors last year, a normal payout level for most companies. A useful secondary check may be to assess whether United Electronics has generated sufficient free cash flow to pay its dividend. In the past year, it has paid out 132% of its free cash flow as dividends, which is uncomfortably high. It’s difficult to consistently pay more money than you generate without borrowing or using company cash, so we wonder how the company justifies this level of payment.
While United Electronics’ dividends were covered by the company’s reported profits, the cash flow is a bit more, so it’s not great to see that the company hasn’t generated enough cash to pay its dividends. Money is king, as they say, and if United Electronics were to repeatedly pay dividends that are not well covered by cash flow, we would take that as a warning sign.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see United Electronics growing its profits rapidly, increasing 46% per year over the past five years. Profits have grown rapidly, but we’re concerned that dividend payments have consumed most of the company’s cash flow over the past year.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Since our data began four years ago, United Electronics has increased its dividend by about 38% per year on average. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.
Should investors buy United Electronics for the next dividend? It is good to see that earnings per share are increasing and that the company’s payout ratio is within a normal range for most companies. However, we are somewhat concerned that he paid 132% of his cash flow, which is uncomfortably high. In summary, it’s hard to get excited about United Electronics from a dividend standpoint.
That being said, if dividends aren’t your biggest concern with United Electronics, you should be aware of the other risks this business faces. We have identified 3 warning signs with United Electronics (at least 1 which is potentially serious), and understanding them should be part of your investment process.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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