Mahindra & Mahindra (NSE:M&M) Has Announced That It Will Be Increasing Its Dividend To ₹25.30

Mahindra & Mahindra Limited (NSE:M&M) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of July to ₹25.30. Based on this payment, the dividend yield for the company will be 0.8%, which is fairly typical for the industry.

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Mahindra & Mahindra's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Mahindra & Mahindra's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 18.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Mahindra & Mahindra

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹7.00 in 2015, and the most recent fiscal year payment was ₹25.30. This means that it has been growing its distributions at 14% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Mahindra & Mahindra has been growing its earnings per share at 32% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Mahindra & Mahindra's Dividend

Overall, we always like to see the dividend being raised, but we don't think Mahindra & Mahindra will make a great income stock. While Mahindra & Mahindra is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Mahindra & Mahindra you should be aware of, and 1 of them is a bit unpleasant. Is Mahindra & Mahindra not quite the opportunity you were looking for? Why not check out our selection of top 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.