Two Days Left Until Tech Mahindra Limited (NSE:TECHM) Trades Ex-Dividend

Tech Mahindra Limited (NSE:TECHM) is about to trade ex-dividend in the next two days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Tech Mahindra investors that purchase the stock on or after the 20th of October will not receive the dividend, which will be paid on the 12th of November.

The company's upcoming dividend is ₹15.00 a share, following on from the last 12 months, when the company distributed a total of ₹45.00 per share to shareholders. Last year's total dividend payments show that Tech Mahindra has a trailing yield of 3.1% on the current share price of ₹1463.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Tech Mahindra has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Tech Mahindra generated enough free cash flow to afford its dividend. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Tech Mahindra's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Tech Mahindra

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Tech Mahindra's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A payout ratio of 89% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Tech Mahindra has lifted its dividend by approximately 22% a year on average.

Final Takeaway

Is Tech Mahindra an attractive dividend stock, or better left on the shelf? Tech Mahindra has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. All things considered, we are not particularly enthused about Tech Mahindra from a dividend perspective.

If you want to look further into Tech Mahindra, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Tech Mahindra and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.