Bank Islam Malaysia Berhad (KLSE:BIMB) Has Announced That Its Dividend Will Be Reduced To MYR0.104

The board of Bank Islam Malaysia Berhad (KLSE:BIMB) has announced it will be reducing its dividend by 4.8% from last year's payment of MYR0.109 on the 30th of January, with shareholders receiving MYR0.104. This means that the annual payment will be 4.1% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Bank Islam Malaysia Berhad

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

We aren't too impressed by dividend yields unless they can be sustained over time.

Looking at its history, Bank Islam Malaysia Berhad does not yet have a history of paying out dividends, with this year being its first year of distribution. But while Bank Islam Malaysia Berhad was able to finally pay out a dividend for the first time, its most recent earnings report shows the company's net income didn't cover its dividend distribution. This is worrying for investors as it points to Bank Islam Malaysia Berhad's dividends being unsustainable in the long term.

Looking forward, EPS is forecast to rise by 52.0% over the next 3 years. The future payout ratio could be 47% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Bank Islam Malaysia Berhad Doesn't Have A Long Payment History

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Bank Islam Malaysia Berhad May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Bank Islam Malaysia Berhad has seen earnings per share falling at 2.7% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Bank Islam Malaysia Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Bank Islam Malaysia Berhad (of which 1 is significant!) 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.