What To Know Before Buying AEON Credit Service (M) Berhad (KLSE:AEONCR) For Its Dividend

Could AEON Credit Service (M) Berhad (KLSE:AEONCR) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

While AEON Credit Service (M) Berhad's 1.5% dividend yield is not the highest, we think its lengthy payment history is quite interesting. The company also bought back stock equivalent to around 4.1% of market capitalisation this year. Some simple research can reduce the risk of buying AEON Credit Service (M) Berhad for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on AEON Credit Service (M) Berhad!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 30% of AEON Credit Service (M) Berhad's profits were paid out as dividends in the last 12 months. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

Remember, you can always get a snapshot of AEON Credit Service (M) Berhad's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. AEON Credit Service (M) Berhad has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was RM0.1 in 2011, compared to RM0.2 last year. Dividends per share have grown at approximately 3.9% per year over this time. The dividends haven't grown at precisely 3.9% every year, but this is a useful way to average out the historical rate of growth.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

Dividend 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. Over the past five years, it looks as though AEON Credit Service (M) Berhad's EPS have declined at around 5.1% a year. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're glad to see AEON Credit Service (M) Berhad has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share are down, and AEON Credit Service (M) Berhad's dividend has been cut at least once in the past, which is disappointing. AEON Credit Service (M) Berhad might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

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. Just as an example, we've come accross 2 warning signs for AEON Credit Service (M) Berhad you should be aware of, and 1 of them is concerning.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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