Stock Analysis

CIMB Group Holdings Berhad (KLSE:CIMB) Has Announced That It Will Be Increasing Its Dividend To MYR0.13

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CIMB Group Holdings Berhad's (KLSE:CIMB) dividend will be increasing from last year's payment of the same period to MYR0.13 on 28th of October. The payment will take the dividend yield to 4.8%, which is in line with the average for the industry.

View our latest analysis for CIMB Group Holdings Berhad

CIMB Group Holdings Berhad's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

CIMB Group Holdings Berhad has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on CIMB Group Holdings Berhad's last earnings report, the payout ratio is at a decent 75%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, EPS is forecast to rise by 94.3% over the next 3 years. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 50% over the same time period, which would make us comfortable with the sustainability of the dividend.

KLSE:CIMB Historic Dividend September 16th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was MYR0.24, compared to the most recent full-year payment of MYR0.26. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that CIMB Group Holdings Berhad's earnings per share has fallen at approximately 6.8% per year over the past 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think CIMB Group Holdings Berhad will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, CIMB Group Holdings Berhad has 3 warning signs (and 1 which is a bit concerning) we think 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.