Mahindra & Mahindra Financial Services (NSE:M&MFIN) Has Announced That It Will Be Increasing Its Dividend 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 2.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Mahindra & Mahindra Financial Services' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 49.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹2.80 in 2013 to the most recent total annual payment of ₹6.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

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. Mahindra & Mahindra Financial Services has seen earnings per share falling at 3.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Mahindra & Mahindra Financial Services' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Mahindra & Mahindra Financial Services will make a great income stock. While Mahindra & Mahindra Financial Services is earning enough to cover the payments, the cash flows are lacking. We don't think Mahindra & Mahindra Financial Services is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Mahindra & Mahindra Financial Services you should be aware of, and 2 of them are concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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