Mahindra Logistics' (NSE:MAHLOG) Shareholders Will Receive A Bigger Dividend Than Last Year

Mahindra Logistics Limited (NSE:MAHLOG) will increase its dividend from last year's comparable payment on the 23rd of August to ₹2.50. Despite this raise, the dividend yield of 0.6% is only a modest boost to shareholder returns.

View our latest analysis for Mahindra Logistics

Mahindra Logistics' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend was quite easily covered by Mahindra Logistics' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 11%, which makes us pretty comfortable with the sustainability of the dividend.

Mahindra Logistics Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 5 years was ₹1.50 in 2018, and the most recent fiscal year payment was ₹2.50. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Mahindra Logistics has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Mahindra Logistics' EPS has fallen by approximately 17% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Mahindra Logistics' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. For example, we've picked out 2 warning signs for Mahindra Logistics that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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