Mazagon Dock Shipbuilders (NSE:MAZDOCK) Will Pay A Dividend Of ₹12.11

Mazagon Dock Shipbuilders Limited's (NSE:MAZDOCK) investors are due to receive a payment of ₹12.11 per share on 26th of October. Even though the dividend went up, the yield is still quite low at only 0.6%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Mazagon Dock Shipbuilders' stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Mazagon Dock Shipbuilders

Mazagon Dock Shipbuilders' Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Mazagon Dock Shipbuilders' dividend was only 29% of earnings, however it was paying out 228% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 29.1%. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Mazagon Dock Shipbuilders' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2020, the dividend has gone from ₹10.82 total annually to ₹27.45. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Mazagon Dock Shipbuilders has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Mazagon Dock Shipbuilders has been growing its earnings per share at 37% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Mazagon Dock Shipbuilders' payments are rock solid. While Mazagon Dock Shipbuilders is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Mazagon Dock Shipbuilders (of which 2 shouldn't be ignored!) you should know about. Is Mazagon Dock Shipbuilders 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.