Mazagon Dock Shipbuilders (NSE:MAZDOCK) Will Pay A Smaller Dividend Than Last Year

Mazagon Dock Shipbuilders Limited's (NSE:MAZDOCK) dividend is being reduced from last year's payment covering the same period to ₹1.63 on the 27th of October. The yield is still above the industry average at 2.0%.

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 61% 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' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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 12.2%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Mazagon Dock Shipbuilders' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 2 years was ₹10.82 in 2020, and the most recent fiscal year payment was ₹8.73. The dividend has fallen 19% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Mazagon Dock Shipbuilders Could Grow Its Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Mazagon Dock Shipbuilders has impressed us by growing EPS at 8.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Mazagon Dock Shipbuilders' prospects of growing its dividend payments in the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Mazagon Dock Shipbuilders that you should be aware of before investing. 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.