Mphasis (NSE:MPHASIS) Is Increasing Its Dividend To ₹57.00

Mphasis Limited (NSE:MPHASIS) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of August to ₹57.00. This takes the dividend yield to 2.0%, which shareholders will be pleased with.

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Mphasis' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Mphasis was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 38.4%. If the dividend continues on this path, the payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Mphasis

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ₹17.00 total annually to ₹57.00. This means that it has been growing its distributions at 13% per annum over that time. Mphasis has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Mphasis has impressed us by growing EPS at 5.5% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Mphasis that you should be aware of before investing. Is Mphasis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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