PETALING JAYA: Dividend investing on Bursa Malaysia is facing a reality check, as geopolitical tensions, tax changes and shifting interest rate expectations challenge the notion of “safe” yield plays.
Traditional dividend havens such as real estate investment trusts (REITs), banks and consumer staples are coming under pressure, leading investors to rethink where resilience truly lies.
The Middle East conflict, which has pushed up oil prices and inflation expectations, has complicated the outlook for interest rates, while a recent change in Malaysia’s tax treatment of REIT distributions has dampened sentiment.
Analysts said the current environment calls for a selective approach to dividend- investing.
Rather than relying on traditional high-yield sectors, they say investors should prioritise companies with durable cash flows, strong balance sheets and the ability to navigate both policy shifts and geopolitical uncertainty.
Tradeview Capital portfolio manager Neoh Jia Man said REITs have historically been among the most stable dividend-paying instruments, but recent policy changes have altered their appeal.
He was referring to the removal of a longstanding tax concession on REITs – the cessation of the flat 10% withholding tax, effective from the 2026 assessment year.
As a result, Neoh said REIT valuations have come under pressure in recent trading sessions, despite their long-standing status as defensive yield plays.
Similarly, Kenanga Research head of research Peter Kong said the non-extension of the preferential withholding tax has dulled sentiment for the sector, leading the research house to maintain a “neutral” call with no “outperform” picks, despite the sector’s average gross yield of 5.4%.
“Compared with a 10% withholding tax previously, investors will have to bear their own taxes and could end up with a higher rate of tax, The most affected segment is likely to be foreign investors which will now be taxed at the most punitive 30%.” he said.
However, he added there is a silver lining for individuals with tax brackets below 10%, who may benefit under the new framework, while companies are generally insulated.
Kong said the evolving macro environment calls for a more selective approach to dividend investing.
He noted that inflation is now expected to rise to 2.1% in 2026, up from an earlier forecast of 1.9%, which could slightly crimp returns including from dividends.
Companies with steady cash flows and strong balance sheets are best positioned to weather near-term uncertainty, he added, highlighting stocks such as MR DIY Group (M) Bhd
, Padini Holdings Bhd and TIME Dotcom Bhd.
Banks, another traditional favourite among dividend investors, are also facing near-term uncertainties.
Neoh said the sector had, earlier this year, benefited from foreign capital inflows on expectations of US Federal Reserve (Fed) rate cuts. However, rising inflation risks linked to the conflict have led markets to reassess the Fed’s monetary policy stance.
“This raises the possibility of foreign capital outflows from domestic banking stocks, which could weigh on share prices in the near term,” he said, adding that while banks remain fundamentally sound, price volatility may persist.
Kong said dividend increases for banks are expected, but they may take longer than the first half of 2026 to materialise.
“Initially, provision overlays and macro-economic variables may be needed out of prudence,” he said, noting that a five basis points (bps) to 10 bps top-up to credit costs could lift the loan-loss coverage of 10 major banks from 96% to above the “psychological” 100%.
“Moving into the second half, we therefore believe there would then be scope for overlay writebacks, as tensions subside.”
Consumer staples, typically seen as resilient dividend counters, are not entirely insulated.
Neoh said rising input costs tied to energy and agricultural commodities could compress margins, as companies could find it challenging to fully pass on higher costs to consumers.
“Given that there are staples, investors are also sort of anticipating that they might not be that easy for them to hide their price to pass on the cost pressure that easily,” he said.
Against these backdrops, investors are told to look at sectors with stronger structural support for earnings and cash flow.
Former investment banker Ian Yoong highlighted plantation companies as a standout, underpinned by long-term supply constraints and structural advantages.
He noted that the sector has already outperformed in 2025 and year-to-date, supported by what he described as a strong “economic moat.”
“The economic moat that Warren Buffett espouses as one of the criteria in stock selection is that the global sustainability framework is a major barrier to land made available for new plantations,” Yoong said.
