Mahanagar Gas Limited (NSE:MGL) Passed Our Checks, And It's About To Pay A ₹9.00 Dividend

Mahanagar Gas Limited (NSE:MGL) is about to trade ex-dividend in the next three days. You will need to purchase shares before the 18th of February to receive the dividend, which will be paid on the 11th of March.

Mahanagar Gas's next dividend payment will be ₹9.00 per share, on the back of last year when the company paid a total of ₹19.50 to shareholders. Calculating the last year's worth of payments shows that Mahanagar Gas has a trailing yield of 1.7% on the current share price of ₹1140.55. If you buy this business for its dividend, you should have an idea of whether Mahanagar Gas's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Mahanagar Gas

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Mahanagar Gas paying out a modest 34% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Mahanagar Gas paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Mahanagar Gas's earnings per share have risen 11% per annum over the last five years. Mahanagar Gas has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mahanagar Gas has delivered 18% dividend growth per year on average over the past four years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Mahanagar Gas? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Mahanagar Gas, and we would prioritise taking a closer look at it.

While it's tempting to invest in Mahanagar Gas for the dividends alone, you should always be mindful of the risks involved. For example - Mahanagar Gas has 2 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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