Alliance Bank Malaysia Berhad's (KLSE:ABMB) Upcoming Dividend Will Be Larger Than Last Year's

Alliance Bank Malaysia Berhad (KLSE:ABMB) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of December to MYR0.12. This will take the dividend yield to an attractive 6.3%, providing a nice boost to shareholder returns.

Our analysis indicates that ABMB is potentially undervalued!

Alliance Bank Malaysia Berhad's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Having paid out dividends for 5 years, Alliance Bank Malaysia Berhad has a good history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio of 55%shows that Alliance Bank Malaysia Berhad would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 21.5%. Analysts forecast the future payout ratio could be 47% over the same time horizon, which is a number we think the company can maintain.

Alliance Bank Malaysia Berhad's Dividend Has Lacked Consistency

Alliance Bank Malaysia Berhad has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of MYR0.17 in 2017 to the most recent total annual payment of MYR0.24. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.1% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 4.1% 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.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Alliance Bank Malaysia Berhad (of which 1 doesn't sit too well with us!) you should know about. 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.