Bank Islam Malaysia Berhad (KLSE:BIMB) Is Reducing Its Dividend To MYR0.104

The board of Bank Islam Malaysia Berhad (KLSE:BIMB) has announced that the dividend on 30th of January will be reduced by 4.8% from last year's MYR0.109 to MYR0.104. Despite the cut, the dividend yield of 4.2% will still be comparable to other companies in the industry.

See our latest analysis for Bank Islam Malaysia Berhad

Bank Islam Malaysia Berhad's Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

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. While Bank Islam Malaysia Berhad's efforts to pay out a dividend can be applauded, its latest earnings report actually shows that the company didn't have enough earnings to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Bank Islam Malaysia Berhad is pulling cash from elsewhere to make its shareholders happy.

Over the next 3 years, EPS is forecast to expand by 52.2%. 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 Is Still Building Its Track Record

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.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. 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

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Bank Islam Malaysia Berhad has been making. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Bank Islam Malaysia Berhad has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is Bank Islam 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.