Mahindra & Mahindra Financial Services' (NSE:M&MFIN) Upcoming Dividend Will Be Larger Than Last Year's

Mahindra & Mahindra Financial Services Limited's (NSE:M&MFIN) dividend will be increasing from last year's payment of the same period to ₹6.50 on 21st of August. This takes the dividend yield to 2.6%, which shareholders will be pleased with.

We've discovered 2 warning signs about Mahindra & Mahindra Financial Services. View them for free.

Mahindra & Mahindra Financial Services' Future Dividend Projections Appear 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. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 51.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

View our latest analysis for Mahindra & Mahindra Financial Services

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from ₹3.80 total annually to ₹6.50. This works out to be a compound annual growth rate (CAGR) of approximately 5.5% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Mahindra & Mahindra Financial Services May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Mahindra & Mahindra Financial Services' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. If Mahindra & Mahindra Financial Services is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Mahindra & Mahindra Financial Services (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.