Diversified United Investment Limited (ASX:DUI) has announced it will increase its periodic dividend on September 9 to A$0.09, which will be 5.9% higher than last year’s comparable payout of A$0.085. That brings the annual payout to 3.3% of the current share price, which is about average for the industry.

Check out our latest analysis of United Diversified Investments

United Investments’ Diversified Dividend is well covered by earnings

We like to see a healthy dividend yield, but that’s only useful to us if the payout can continue. Prior to this announcement, Diversified United Investment paid out 74% of earnings but a relatively paltry 63% of free cash flow. Since the dividend is simply paying cash to shareholders, we care more about the cash payout ratio from which we can see that there is plenty left over for reinvestment in the business.

If the trend of recent years continues, EPS will grow by 6.4% over the next 12 months. Assuming the dividend continues on recent trends, we think the payout ratio could be 72% by next year, which is in a fairly stable range.

dividend history

dividend history

United Diversified Investment has a consistent track record

Even during a long history of paying dividends, the company’s distributions have been remarkably consistent. The annual payout over the past 10 years was A$0.13 in 2012 and the most recent fiscal year payout was A$0.16. That means it has increased its distributions by 2.1% per year over that time. While we can’t deny that the dividend has been remarkably consistent in the past, growth has been fairly muted.

The dividend has growth potential

Investors who have held shares in the company over the past few years will be pleased with the dividend income they have received. United Diversified Investment has impressed us by growing EPS by 6.4% annually over the past five years. Recently, the company has been able to grow earnings at a decent pace, but with the payout ratio at the higher end, we don’t think the dividend has much upside.

We really like the dividend of diversified pooled investments

In summary, it is always positive to see the dividend increase and we are particularly pleased with its overall sustainability. Earnings easily cover distributions and the company is generating a lot of cash. Generally, this checks many of the boxes we look for when choosing an income statement.

Investors generally tend to favor companies with a stable and consistent dividend policy compared to those operating with an irregular policy. However, investors should consider a host of factors other than dividend payments when analyzing a company. Now, if you want a closer look, it’s worth checking out ours free research on the United Diversified Investments management mandate, pay and performance. Looking for more high yielding dividend ideas? Try ours collecting strong dividend payers.

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This article from 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 into account your financial objectives or situation. We aim to bring you focused long-term analysis driven by fundamental data. Note that our analysis may not include the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in any of the stocks mentioned.

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