AFFIN Bank Berhad's (KLSE:AFFIN) dividend is being reduced from last year's payment covering the same period to MYR0.0777 on the 11th of July. However, the dividend yield of 7.8% is still a decent boost to shareholder returns.

Check out our latest analysis for AFFIN Bank Berhad

AFFIN Bank Berhad's Earnings Will Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much.

AFFIN Bank Berhad has a short history of paying out dividends, with its current track record at only 4 years. While AFFIN Bank Berhad's efforts to pay out a dividend can be applauded, its latest earnings report actually shows that the company didn't have enough earnings in the year to cover its dividends. This is worrying for investors as it points to AFFIN Bank Berhad's dividends being unsustainable in the long term.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. They also estimate the payout ratio reaching 48% in the same time period, which is fairly sustainable.

AFFIN Bank Berhad's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2019, the dividend has gone from MYR0.05 total annually to MYR0.155. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 32% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We're Not Big Fans Of AFFIN Bank Berhad's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for AFFIN Bank Berhad you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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