Tech Mahindra (NSE:TECHM) Has Affirmed Its Dividend Of ₹30.00

The board of Tech Mahindra Limited (NSE:TECHM) has announced that it will pay a dividend of ₹30.00 per share on the 25th of August. The dividend yield will be 3.9% based on this payment which is still above the industry average.

View our latest analysis for Tech Mahindra

Tech Mahindra's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, based ont he last payment, Tech Mahindra was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 91% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

The next year is set to see EPS grow by 6.9%. If the dividend continues on this path, the payout ratio could be 72% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was ₹1.00, compared to the most recent full-year payment of ₹45.00. This means that it has been growing its distributions at 46% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tech Mahindra has impressed us by growing EPS at 15% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Tech Mahindra is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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. 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 2 warning signs for Tech Mahindra that you should be aware of before investing. Is Tech Mahindra not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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