United Overseas Australia Limited's (ASX:UOS) dividend is being reduced to AU$0.013 on the 3rd of June. However, the dividend yield of 2.1% still remains in a typical range for the industry.

Check out our latest analysis for United Overseas Australia

United Overseas Australia's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. However, United Overseas Australia's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 16.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 28%, which we are pretty comfortable with and we think is feasible on an earnings basis. historic-dividend

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from AU$0.02 to AU$0.013. The dividend has shrunk at around 3.9% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 16% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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 identified 3 warning signs for United Overseas Australia (1 is significant!) that you should be aware of before investing. Is United Overseas Australia not quite the opportunity you were looking for? Why not check out our selection of top 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.