Mazagon Dock Shipbuilders (NSE:MAZDOCK) Has Announced A Dividend Of ₹6.00

Mazagon Dock Shipbuilders Limited (NSE:MAZDOCK) will pay a dividend of ₹6.00 on the 26th of November. This payment takes the dividend yield to 0.6%, which only provides a modest boost to overall returns.

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Mazagon Dock Shipbuilders' Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Mazagon Dock Shipbuilders was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 35.1%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Mazagon Dock Shipbuilders

Mazagon Dock Shipbuilders' Dividend Has Lacked Consistency

Looking back, Mazagon Dock Shipbuilders' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ₹5.41 in 2020 to the most recent total annual payment of ₹17.31. This implies that the company grew its distributions at a yearly rate of about 26% 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.

The Dividend Looks Likely To Grow

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 Mazagon Dock Shipbuilders has grown earnings per share at 44% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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.

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. As an example, we've identified 1 warning sign for Mazagon Dock Shipbuilders that you should be aware of before investing. 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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