AEON Credit Service (M) Berhad (KLSE:AEONCR) Is Paying Out A Larger Dividend Than Last Year

The board of AEON Credit Service (M) Berhad (KLSE:AEONCR) has announced that it will be paying its dividend of MYR0.21 on the 20th of July, an increased payment from last year's comparable dividend. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for AEON Credit Service (M) Berhad

AEON Credit Service (M) Berhad's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. AEON Credit Service (M) Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 7.7%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.182 in 2013 to the most recent total annual payment of MYR0.495. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

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. Earnings have grown at around 2.8% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, AEON Credit Service (M) Berhad has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On AEON Credit Service (M) Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think AEON Credit Service (M) Berhad's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think AEON Credit Service (M) Berhad is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 2 warning signs for AEON Credit Service (M) 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.