Mahindra Logistics' (NSE:MAHLOG) Dividend Will Be Reduced To ₹2.00

Mahindra Logistics Limited (NSE:MAHLOG) is reducing its dividend to ₹2.00 on the 28th of August. Based on this payment, the dividend yield will be 0.4%, which is lower than the average for the industry.

See our latest analysis for Mahindra Logistics

Mahindra Logistics' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Mahindra Logistics' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 118.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Mahindra Logistics' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2018, the first annual payment was ₹1.50, compared to the most recent full-year payment of ₹2.00. This implies that the company grew its distributions at a yearly rate of about 7.5% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Mahindra Logistics has seen earnings per share falling at 5.1% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 9 analysts are forecasting a turnaround in our free collection of analyst estimates here. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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