Mahindra & Mahindra Limited (NSE:M&M) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of September to ₹16.25. This takes the annual payment to 1.2% of the current stock price, which is about average for the industry.
See our latest analysis for Mahindra & Mahindra
Mahindra & Mahindra's Earnings Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Mahindra & Mahindra is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
EPS is set to fall by 5.9% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 20%, which is comfortable for the company to continue in the future.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹6.25 in 2013, and the most recent fiscal year payment was ₹16.25. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Mahindra & Mahindra Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Mahindra & Mahindra has seen EPS rising for the last five years, at 6.0% per annum. Mahindra & Mahindra definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On Mahindra & Mahindra's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Mahindra & Mahindra (2 can't be ignored!) that you should be aware of before investing. 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.
About NSEI:M&M
Mahindra & Mahindra
Provides mobility products and farm solutions in India and internationally.
Mediocre balance sheet second-rate dividend payer.
