Would You Buy Uchi For Its Dividends?

Last night I highlighted the declining earnings in Uchi. Yet Another Update On Uchi

I clicked open my stock quotes and Uchi is UP a nice 6 sen or 8%!!!




Bad earnings? But the markets are loving the stock! Why? Are my comments WRONG?

Well do understand this. I am merely stating the facts and for Uchi, its earnings is CLEARLY DECLINING and do note that I do not here to predict the stock movement.

So what is happening with Uchi?

If I have to guess the answer is very simple.
PROPOSED FINAL DIVIDEND FOR THE YEAR ENDED DECEMBER 31, 2008

• Please be informed that the Board of Directors of Uchi Technologies Berhad has, on February 25, 2009, proposed a Final Tax Exempt Dividend of 6 sen per share of RM0.20 each for the year ended December 31, 2008 for the approval of shareholders at the forthcoming Annual General Meeting of the Company.However, the entitlement date and date of payment of the Dividend have yet to be finalised at the moment

Based on yesterday's closing price, this proposed Tax Exempt Dividend is certainly interesting.

I took a look at its balance sheet.

Its cash balances total 135.844 million and it had no loans. However, if you look at the previous year cash balances, you can see clearly that Uchi's cash balance is shrinking.

Flashback 2007. I wrote Review Of Uchi Again

In it I compiled the following table.

Back in 2006, it had cash balances of 168.170 million and when I looked at in Sept 2007, it had cash balances of 172.039 million. Cash balances now is 135.844 million. Clearly shrinking yes?

Yesterday's 4Q unaudited earnings, Uchi reported net profit of only 58.748 million.

Compare to to the above table.

The last time Uchi reported net earnings below 60 million was fy 2003.

So we have the very interesting case where one is looking at three main issues.

1. Uchi pays great dividends.

2. Earnings is clearly declining.

3. Cash balances is also clearly declining and one of the main reason is that Uchi's pays great dividends.

Now common sense would suggest that if the earnings keep on declining, one day Uchi's dividends payout would surely decline too.

Counter argument is that in the long run, Uchi's earnings should recover and given the fact that Uchi's current cash balances is still quite sizeable, why worry? Buy and enjoy the dividends for the long term.

How?

Would you buy Uchi for its dividends?