British American Tobacco (Malaysia) Berhad (KLSE:BAT) Is Increasing Its Dividend To MYR0.22

The board of British American Tobacco (Malaysia) Berhad (KLSE:BAT) has announced that it will be paying its dividend of MYR0.22 on the 27th of November, an increased payment from last year's comparable dividend. This will take the annual payment to 7.8% of the stock price, which is above what most companies in the industry pay.

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

British American Tobacco (Malaysia) Berhad's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to fall by 8.1%. If recent patterns in the dividend continue, we could see the payout ratio reaching 85% 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. Since 2014, the annual payment back then was MYR2.82, compared to the most recent full-year payment of MYR0.63. The dividend has fallen 78% over that period. 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

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been sinking by 13% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

British American Tobacco (Malaysia) Berhad's Dividend Doesn't Look Great

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for British American Tobacco (Malaysia) Berhad you should be aware of, and 2 of them are concerning. Is British American Tobacco (Malaysia) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.