Alliance Bank Malaysia Berhad's (KLSE:ABMB) Shareholders Will Receive A Bigger Dividend Than Last Year

Alliance Bank Malaysia Berhad (KLSE:ABMB) has announced that it will be increasing its dividend on the 30th of June to RM0.10. Based on the announced payment, the dividend yield for the company will be 5.2%, which is fairly typical for the industry.

View our latest analysis for Alliance Bank Malaysia Berhad

Alliance Bank Malaysia Berhad's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Alliance Bank Malaysia Berhad's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 16.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

Alliance Bank Malaysia Berhad's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the dividend has gone from RM0.17 to RM0.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Alliance Bank Malaysia Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 2.0% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Alliance Bank Malaysia Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Alliance Bank Malaysia Berhad's payments are rock solid. While Alliance Bank Malaysia Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Alliance Bank Malaysia Berhad has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Alliance Bank Malaysia Berhad 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.