United Guardian: Is The Current 5.4% Dividend Safe?

Published Fri, 22 Apr 2016 14:46:24 -0400 on Seeking Alpha

United Guardian, Inc. (Nasdaq: UG), a producer of base materials for the cosmetic and health care industries has recently released its annual report for 2015. When I last wrote about the company, I was guardedly enthusiastic about the future of the company. However, after reading the current annual report, I am no longer enthusiastic about the short term prospects for sales and profits at United Guardian. There were several red flags in the report which give me pause about sales and profits for 2016.
The company has been experiencing increased competition from lower-priced Chinese-made copies of its Lubrajel Oil products which are being marketed by a Korean company. Furthermore the company experienced a 5% sales increase from 2014 to 2015 which was totally attributed to sales of Lubrajel Oil in China through its marketing partner, Ashland Specialty Ingredients (NYSE: ASI). These additional sales led to an excess inventory situation for ASI which has consequences for 2016. There will be a significant sales decrease this year since China is the largest customer for the product and the company does not expect to send any shipments of Lubrajel Oil to China until around August of this year. This is a really large problem because Lubrajel Oil products represent 85% of the company's business. (Taken from UG's 10K)
Because of the competitive situation brought about these lower-priced Chinese products, management wrote,
"We intend to do everything we can to recover... Read more

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