Mahindra Lifespace Developers (NSE:MAHLIFE) Will Pay A Larger Dividend Than Last Year At ₹2.80

Mahindra Lifespace Developers Limited (NSE:MAHLIFE) will increase its dividend from last year's comparable payment on the 24th of August to ₹2.80. This will take the annual payment to 0.8% of the stock price, which is above what most companies in the industry pay.

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Mahindra Lifespace Developers' Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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. We think that this practice can make the dividend quite risky in the future.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, so there isn't too much pressure on the dividend.

View 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 annual payment during the last 10 years was ₹2.00 in 2015, and the most recent fiscal year payment was ₹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 impressed us by growing EPS at 50% per year over the past five years. 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.

An additional note is that the company has been raising capital by issuing stock equal to 37% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Mahindra Lifespace Developers' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. To that end, Mahindra Lifespace Developers has 5 warning signs (and 3 which shouldn't be ignored) we think 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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