Bank Islam Malaysia vs. Dubai Islamic Bank: Which is a Better Halal Dividend Stock?
The Islamic banking duo of stocks offer Muslim investors value, growth and healthy dividends.
The introduction of Islamic, or interest-free, banking half a century ago was a watershed for the Muslim ummah. Eventually that paved the way for Shariah compliant principles used in filtering for halal equities. This is a comparison of two Islamic banking pioneers in the leading Islamic finance jurisdictions, Malaysia and the UAE.
Dubai Islamic Bank stock: DIB.AE
Market cap: US$11b
Total assets: US$85b
Return on equity: 15.7%
Trailing dividend yield: 7.9%
Payout ratio: 45%
Trailing Price/Book ratio: 0.95
Dubai Islamic Bank (DIB), opened in 1975, has the honour of calling itself the world’s very first Shariah compliant bank. It has grown to become the UAE's largest Islamic bank — after its merger with Noor Bank in 2020 — servicing 5 million customers across 500 branches. Currently the second largest Islamic bank globally, DIB is also a major regional player, in retail banking as well as capital markets.
Over the past few years, on the back of high interest rates and a healthy demand for loans (or ‘financing’ being the proper Shariah term), the bank has grown both its asset base and bottom line: in the latest fiscal 2023, it reached AED314b in total assets and made a record profit of AED7b.
The bank’s recent achievements are a testament to its commitment to a new stage of development, which sees DIB expanding across the globe as a technologically progressive sustainability champion. Near-term economic projections for the Gulf remain promising, which augurs well for DIB and banking peers.
Bank Islam Malaysia stock: 5258.KL
Market cap: US$1.2b
Total assets: US$19b
Return on equity: 7.5%
Trailing dividend yield: 6.7%
Payout ratio: 65%
Trailing Price/Book ratio: 0.77
Established in 1983, Bank Islam is the oldest full-fledged Islamic banking institution in Malaysia, now one of more than a dozen (though as a separate entity it was listed not too long ago following a structural reorganisation). The latest strategic plan positions the bank at the intersection of Islamic finance and social finance.
It has come a long way, its faltering at one time even prompting a government intervention. Today, despite its small size — Bank Islam’s total assets (FY23: MYR90b) are less than 10% of the biggest Malaysian banking group Maybank — it occupies a solid niche among the country’s Muslim population of 20 million people.
Financial performance has been on an uptrend post-Covid given the economic recovery and elevated interest income. Earnings per share increased from 22.19 sen in 2020 to 24.57 sen in 2023. At the same time, the bank’s gross impaired loans stay low, below the national average — a result of its comprehensive risk management system.
To each his own
Bank Islam and Dubai Islamic Bank are similar in some respects. As decades-old Islamic financial institutions, they have had a profound impact on the Islamic finance industry and, as a consequence, the financial inclusion of practising Muslims, not just in Malaysia and the UAE but everywhere where Shariah compliant banking principles have been adopted.
Both are part owned by government-related entities — DIB by the Investment Corporation Of Dubai and Bank Islam by Lembaga Tabung Haji — reinforcing their financial soundness and the reliability of their generous dividend payouts. Bank Islam presently yields 6.7% at 65%, while DIB pays an ever higher 7.9% despite a lower payout ratio of 45%.
Dubai Islamic Bank just may be the flashier counterpart to a small-cap Bank Islam; the Malaysian financial market is overall more mature and slow-growing. Being more profitable, the Emirati bank trades at a price-to-book ratio above Bank Islam’s, 0.95x versus 0.77x.
All in all, the banking stocks are great value for what they offer, Dubai Islamic Bank for halal growth dividend investing and Bank Islam, with a longer track record of paying dividends, more suited for income-oriented Muslim investors.
Disclaimer: Nothing you read on Tayyib Finance constitutes financial advice. Nor is there a guarantee of Shariah compliance of any particular stock at any particular time, since ‘Shariah compliance’ is fluid depending on the provider of judicial opinion and must be regularly affirmed. Do your own research.
Here is another Malaysian stalwart of a stock, the world’s first listed Islamic REIT:
If you are looking for growth ideas, check out these Shariah compliant semiconductor stocks:
Based solely on the UAE's betrayal of the Palestinian cause — its normalising relations with Israel before and even through this genocide — I would recommend avoiding all Emirati companies, including Dubai Islamic Bank (DIB), regardless of their inherent qualities as halal stocks.