Mahindra & Mahindra Financial Services' (NSE:M&MFIN) Dividend Will Be Increased To ₹6.00

Mahindra & Mahindra Financial Services Limited (NSE:M&MFIN) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of August to ₹6.00. This will take the annual payment to 1.7% of the stock price, which is above what most companies in the industry pay.

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 Mahindra & Mahindra Financial Services' stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Mahindra & Mahindra Financial Services was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 69.3%. 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.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was ₹2.80, compared to the most recent full-year payment of ₹6.00. This means that it has been growing its distributions at 7.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mahindra & Mahindra Financial Services might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Mahindra & Mahindra Financial Services' earnings per share has fallen at approximately 3.8% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Mahindra & Mahindra Financial Services' payments are rock solid. While Mahindra & Mahindra Financial Services 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Mahindra & Mahindra Financial Services (2 are concerning!) that you should be aware of before investing. Is Mahindra & Mahindra Financial Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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