The board of Alliance Bank Malaysia Berhad (KLSE:ABMB) has announced it will be reducing its dividend by 12% from last year's payment of MYR0.109 on the 30th of December, with shareholders receiving MYR0.095. However, the dividend yield of 4.5% still remains in a typical range for the industry.
Check out our latest analysis for Alliance Bank Malaysia Berhad
Alliance Bank Malaysia Berhad's Earnings Will Easily Cover The Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
Alliance Bank Malaysia Berhad has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio of 45%shows that Alliance Bank Malaysia Berhad would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to expand by 17.5%. The future payout ratio could be 46% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
Alliance Bank Malaysia Berhad's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was MYR0.17, compared to the most recent full-year payment of MYR0.223. This implies that the company grew its distributions at a yearly rate of about 4.0% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Alliance Bank Malaysia Berhad Could Grow Its Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Alliance Bank Malaysia Berhad has seen EPS rising for the last five years, at 9.7% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Alliance Bank Malaysia Berhad's Dividend
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Alliance Bank Malaysia Berhad has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.