Bursa Malaysia Berhad (KLSE:BURSA) will pay a dividend of MYR0.15 on the 29th of August. This payment means that the dividend yield will be 3.9%, which is around the industry average.

Check out our latest analysis for Bursa Malaysia Berhad

Bursa Malaysia Berhad’s Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. At the time of the last dividend payment, Bursa Malaysia Berhad was paying out a very large proportion of what it was earning and 124% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 10.5%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89% – on the higher side, but we wouldn’t necessarily say this is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.18, compared to the most recent full-year payment of MYR0.265. This means that it has been growing its distributions at 3.9% per annum over that time. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Bursa Malaysia Berhad May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Bursa Malaysia Berhad’s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Bursa Malaysia Berhad’s Dividend Doesn’t Look Sustainable

Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn’t great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we’ve identified 2 warning signs for Bursa Malaysia Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.