Should You Buy Mazda Limited (NSE:MAZDA) For Its Upcoming Dividend?

It looks like Mazda Limited (NSE:MAZDA) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Mazda's shares before the 22nd of August in order to be eligible for the dividend, which will be paid on the 20th of September.

The company's next dividend payment will be ₹16.00 per share, and in the last 12 months, the company paid a total of ₹16.00 per share. Based on the last year's worth of payments, Mazda stock has a trailing yield of around 1.3% on the current share price of ₹1251.65. If you buy this business for its dividend, you should have an idea of whether Mazda's dividend is reliable and sustainable. So we need to investigate whether Mazda can afford its dividend, and if the dividend could grow.

See our latest analysis for Mazda

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mazda paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that Mazda's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Mazda paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Mazda's earnings per share have risen 15% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Mazda has lifted its dividend by approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Mazda for the upcoming dividend? It's great that Mazda is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Mazda, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Mazda is facing. In terms of investment risks, we've identified 2 warning signs with Mazda and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.