Mahindra Lifespace Developers' (NSE:MAHLIFE) Upcoming Dividend Will Be Larger Than Last Year's

The board of Mahindra Lifespace Developers Limited (NSE:MAHLIFE) has announced that it will be paying its dividend of ₹2.80 on the 24th of August, an increased payment from last year's comparable dividend. This makes the dividend yield 0.8%, which is above the industry average.

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Mahindra Lifespace Developers' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Mahindra Lifespace Developers was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 20%, which makes us pretty comfortable with the sustainability of the dividend.

Check out our latest analysis for Mahindra Lifespace Developers

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹2.00 in 2015 to the most recent total annual payment of ₹2.80. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mahindra Lifespace Developers has seen EPS rising for the last five years, at 50% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Mahindra Lifespace Developers is not retaining those earnings to reinvest in growth.

Our Thoughts On Mahindra Lifespace Developers' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Mahindra Lifespace Developers (2 are potentially serious!) that you should be aware of before investing. Is Mahindra Lifespace Developers 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.