Bursa Malaysia Berhad (KLSE:BURSA) Has Announced That It Will Be Increasing Its Dividend To MYR0.26

Bursa Malaysia Berhad's (KLSE:BURSA) dividend will be increasing from last year's payment of the same period to MYR0.26 on 25th of February. Based on this payment, the dividend yield for the company will be 4.3%, which is fairly typical for the industry.

See our latest analysis for Bursa Malaysia Berhad

Bursa Malaysia Berhad's Future Dividends May Potentially Be At Risk

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Bursa Malaysia Berhad was paying out quite a large proportion of both earnings and cash flow, with the dividend being 97% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next 12 months is set to see EPS grow by 5.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 114% over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from MYR0.213 total annually to MYR0.36. This means that it has been growing its distributions at 5.4% per annum 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.

Bursa Malaysia Berhad Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Bursa Malaysia Berhad has seen EPS rising for the last five years, at 11% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Bursa Malaysia Berhad will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Bursa Malaysia Berhad that investors need to be conscious of moving forward. 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.