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 the dividend on 24th of July will be increased to MYR0.145, which will be 3.6% higher than last year's payment of MYR0.14 which covered the same period. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.

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AEON Credit Service (M) Berhad's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, AEON Credit Service (M) Berhad was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 33.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for AEON Credit Service (M) Berhad

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 dividend has gone from an annual total of MYR0.16 in 2015 to the most recent total annual payment of MYR0.283. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

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. AEON Credit Service (M) Berhad has impressed us by growing EPS at 6.2% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for AEON Credit Service (M) Berhad you should be aware of, and 1 of them is significant. Is AEON Credit Service (M) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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