Maruti Suzuki India's (NSE:MARUTI) Shareholders Will Receive A Bigger Dividend Than Last Year

Maruti Suzuki India Limited's (NSE:MARUTI) dividend will be increasing from last year's payment of the same period to ₹90.00 on 6th of September. Although the dividend is now higher, the yield is only 0.9%, which is below the industry average.

Check out our latest analysis for Maruti Suzuki India

Maruti Suzuki India's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Maruti Suzuki India was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 94% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS is forecast to expand by 56.6%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹8.00 in 2013 to the most recent total annual payment of ₹90.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. 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.

Maruti Suzuki India May Find It Hard To Grow The Dividend

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. Unfortunately, Maruti Suzuki India's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. If Maruti Suzuki India is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Maruti Suzuki India's payments are rock solid. While Maruti Suzuki India is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Maruti Suzuki India that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.