Dividends: Beyond the banks

MALAYSIAN banks continue to carry significant weight with dividend-centric investors.

But it could make sense for this group to be branching away into other sectors, especially with Bank Negara Malaysia likely to hold its overnight policy rate (OPR) at the current 2.75% for the foreseeable future.

“Since net interest margins are heavily influenced by the OPR, the current rate may not prevent margin compression, and limited upside can cap earnings growth and, by extension, dividend growth potential,” says analysts.

Lenders also face credit risk from non-performing loans, macroeconomic volatility, and regulatory factors like Basel rules or capital requirements that can constrain aggressive payout increases.

If the mindset is to diversify into sectors other than banks for dividends, conglomerates with businesses in various industries would come to mind, especially those that have historically been profitable and have allocated a generous portion of earnings back to shareholders.

Diversification in conglomerates

Group chief executive officer (CEO) at Sime Darby Bhd Datuk Jeffri Salim Davidson tells StarBiz 7 that the group’s strong commitment to consistent dividends further contributes to the government’s national GEAR‑uP agenda.

With Permodalan Nasional Bhd (PNB) as Sime Darby’s major shareholder, the dividends also benefit PNB unit holders, he notes.

The value created is therefore shared more broadly, reinforcing the group’s role in uplifting communities and strengthening the country’s economic foundation.

“While our dividend policy is to distribute at least 50% of our net earnings each financial year, we have historically paid out 60% to 70% of earnings as dividends, and have maintained a fairly strong dividend track record,” says Jeffri.

“This policy provides a clear framework for capital allocation, balancing returns to shareholders with the need to reinvest for future growth.”

He points out that this is supported by the sustainability of Sime’s earnings, and guided by its capital requirements for growth across core businesses while maintaining a resilient balance sheet.

This approach has enabled the group to maintain a consistent dividend track record while continuing to drive sustainable growth.

“For the financial year ended June 2025 (FY25), we declared a total dividend of 14 sen per share, amounting to a total payout of RM954mil, which represented 82% of our core net profit and a dividend yield of 6.7%, reflecting both our strong performance and our commitment to delivering value to shareholders,” Jeffri reports.

He elaborates that Sime Darby’s reinvestment is very much focused on strengthening its core businesses of industrial and motors.

In FY25, the group has invested RM1.1bil in capital expenditure, primarily directed towards upgrading facilities and ongoing expansion projects across its Motors, Industrial and Sime UMW divisions.

“In the past eight years, Sime Darby has built a diversified automotive portfolio that spans a wide spectrum of the automotive market, from premium and luxury marques to more accessible and mass market brands as well as various powertrains, while enhancing the end-to-end ownership experience through aftersales capabilities,” says Jeffri.

“Meanwhile, as one of the largest Caterpillar dealers in Asia Pacific, our Industrial division supports key sectors such as mining, construction, oil & gas and data centres across key markets.

“To maintain our dividend payouts, we are also focused on building an agile balance sheet by paring down debt and optimising working capital.”

Over the past two years, Sime Darby has reduced its borrowings by over RM7bil, bringing net gearing down to 0.23 times as at December 2025.

Efforts have been instituted to optimise Sime Darby’s inventory and receivables where RM5bil in cash flow was unlocked in FY25.

Corporate growth and giving back

While Sime Darby recognises that investors may have different priorities, Jeffri says the group’s track record demonstrates that it is possible to deliver both consistent returns and long-term growth through disciplined execution.

“Over the past five financial years from FY21 to FY25, we have consistently delivered over RM1bil in core net profit annually, reflecting the resilience of our diversified portfolio,” he notes.

During this time, he says Sime has also made strategic acquisitions such as UMW Corp Sdn Bhd (now known as Sime UMW) in 2024, as well as Cavpower and Onsite in Australia in 2023 to strengthen its Industrial division.

These acquisitions have positioned the group well in terms of expanding its brands and market segment, as well as diversifying its exposure within its core businesses.

“With a strong balance sheet, resilient earnings and consistent cash flow generation, we have the flexibility to navigate a competitive and evolving landscape, enabling us to continue delivering sustainable dividends while building the foundations for long-term growth,” says Jeffri.

Group CEO at Bermaz Auto Bhd (BAuto) Datuk Seri Francis Lee says his company has a minimum 50% payout policy, and with the group’s asset light and cash-rich business model, it is actually able to pay more dividends if it decides to do so.

“Most of our capital expenditure requirements are at the level of our associate companies, hence there is no need for BAuto to keep a significant amount of cash for our internal reinvestments,” he explains.

Elaborating on where BAuto invests its cash on – besides paying dividends to shareholders – Lee acknowledges that the group needs 3S (sales, service and spare parts) centres.

“Landed properties in good locations are hard to come buy, and it must make commercial sense for us to acquire and build a 3S centre, especially for new brands like the XPeng.”

On the other hand, BAuto will continue paying dividends – which Lee points out are higher than the fixed deposit rates being offered by banks – so long as it remains profitable, especially since the group has low overheads.

He says there was only one fiscal quarter since the group’s listing in 2013 that it did not declare dividends.

That was during the Movement Control Order quarter of April 2020, when businesses in Malaysia and much of the world were completely shut down.

“As long as we are able to sell our vehicles, we should remain profitable, including to our major shareholders such as PNB, the Employees’ Provident Fund, Retirement Fund (Inc) or KWAP and the Armed Forces Fund Board.”

On the flipside, he admits that the group invests heavily on technician training and purchasing electric vehicle (EV) testing equipment even before the group has struck any dealerships with EV brands.

He says this is part of BAuto’s corporate social responsibility to provide technical training to technicians and employees who are willing to work for a better livelihood and a better future for themselves and for their families.

“We pay decent allowances in addition to on-the-job training,” says Lee.

“Our technicians will obtain a certificate from Mazda and a Diploma from the Institute of Motoring United Kingdom.”