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. Based on this payment, the dividend yield for the company will be 1.0%, which is fairly typical for the industry.
View our latest analysis for Mahindra & Mahindra
Mahindra & Mahindra's Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Mahindra & Mahindra's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Over the next year, EPS is forecast to fall by 5.6%. If the dividend continues along recent trends, we estimate the payout ratio could be 20%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹6.25 total annually to ₹16.25. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.
We Could See Mahindra & Mahindra's Dividend Growing
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Mahindra & Mahindra has grown earnings per share at 5.9% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Mahindra & Mahindra's payments are rock solid. 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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Mahindra & Mahindra (of which 1 is significant!) you should know about. 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.
