Bursa Malaysia Berhad (KLSE:BURSA) Is Increasing Its Dividend To RM0.24

Bursa Malaysia Berhad (KLSE:BURSA) has announced that it will be increasing its dividend on the 27th of August to RM0.24. This takes the dividend yield from 6.8% to 7.6%, which shareholders will be pleased with.

See our latest analysis for Bursa Malaysia Berhad

Bursa Malaysia Berhad Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Bursa Malaysia Berhad's was paying out quite a large proportion of earnings and 91% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to fall by 26.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 157%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from RM0.13 to RM0.52. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Bursa Malaysia Berhad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Bursa Malaysia Berhad has been growing its earnings per share at 17% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Bursa Malaysia Berhad that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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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