British American Tobacco (Malaysia) Berhad (KLSE:BAT) Is Increasing Its Dividend To RM0.26

British American Tobacco (Malaysia) Berhad's (KLSE:BAT) dividend will be increasing to RM0.26 on 25th of November. The announced payment will take the dividend yield to 6.5%, which is in line with the average for the industry.

See our latest analysis for British American Tobacco (Malaysia) Berhad

British American Tobacco (Malaysia) Berhad's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. At the time of the last dividend payment, British American Tobacco (Malaysia) Berhad was paying out a very large proportion of what it was earning and 201% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to fall by 0.01%. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from RM2.40 in 2011 to the most recent annual payment of RM0.83. This works out to a decline of approximately 65% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though British American Tobacco (Malaysia) Berhad's EPS has declined at around 15% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, British American Tobacco (Malaysia) Berhad has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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