Stock Analysis

Mahindra & Mahindra Financial Services' (NSE:M&MFIN) Shareholders Will Receive A Bigger Dividend Than Last Year

NSEI:M&MFIN
Source: Shutterstock

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 22nd of August to ₹6.30. This takes the dividend yield to 2.1%, which shareholders will be pleased with.

View our latest analysis for Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Mahindra & Mahindra Financial Services' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 70.4% over the next year. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

historic-dividend
NSEI:M&MFIN Historic Dividend June 20th 2024

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹3.80 in 2014, and the most recent fiscal year payment was ₹6.30. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 12% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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 a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com