Malaysia Building Society Berhad (KLSE:MBSB) Is Reducing Its Dividend To RM0.02

Malaysia Building Society Berhad's (KLSE:MBSB) dividend is being reduced to RM0.02 on the 30th of July. This means that the annual payment will be 3.2% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Malaysia Building Society Berhad

Malaysia Building Society Berhad's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, Malaysia Building Society Berhad's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 79.9%. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was RM0.09 in 2011, and the most recent fiscal year payment was RM0.02. This works out to a decline of approximately 78% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Although it's important to note that Malaysia Building Society 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. While growth may be thin on the ground, Malaysia Building Society Berhad could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Even though the dividend was cut this year, we think Malaysia Building Society Berhad has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so 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. Taking the debate a bit further, we've identified 4 warning signs for Malaysia Building Society Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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