Bursa Malaysia Berhad (KLSE:BURSA) Is Paying Out Less In Dividends Than Last Year

Bursa Malaysia Berhad (KLSE:BURSA) is reducing its dividend to RM0.17 on the 25th of February. However, the dividend yield of 6.6% still remains in a typical range for the industry.

View our latest analysis for Bursa Malaysia Berhad

Bursa Malaysia Berhad Doesn't Earn Enough To Cover Its Payments

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Bursa Malaysia Berhad's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 96% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to fall by 34.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 157%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was RM0.13, compared to the most recent full-year payment of RM0.41. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Bursa Malaysia Berhad's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Bursa Malaysia Berhad has been growing its earnings per share at 13% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. For instance, we've picked out 2 warning signs for Bursa Malaysia Berhad that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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