Samvardhana Motherson International (NSE:MOTHERSON) Is Paying Out A Dividend Of ₹0.65

The board of Samvardhana Motherson International Limited (NSE:MOTHERSON) has announced that it will pay a dividend of ₹0.65 per share on the 27th of September. This payment means that the dividend yield will be 0.7%, which is around the industry average.

See our latest analysis for Samvardhana Motherson International

Samvardhana Motherson International's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Samvardhana Motherson International was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 169.2% over the next year. If the dividend continues on this path, the payout ratio could be 11% 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 ₹0.198 in 2013 to the most recent total annual payment of ₹0.65. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Come By

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. In the last five years, Samvardhana Motherson International's earnings per share has shrunk at approximately 8.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Samvardhana Motherson International's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Samvardhana Motherson International's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Samvardhana Motherson International is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Samvardhana Motherson International that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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