Mahanagar Gas' (NSE:MGL) Upcoming Dividend Will Be Larger Than Last Year's

Mahanagar Gas Limited's (NSE:MGL) dividend will be increasing from last year's payment of the same period to ₹10.00 on 4th of March. This takes the dividend yield to 2.9%, which shareholders will be pleased with.

View our latest analysis for Mahanagar Gas

Mahanagar Gas' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Mahanagar Gas was paying a whopping 1,539% as a dividend, but this only made up 28% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 42.3%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

Mahanagar Gas Is Still Building Its Track Record

It is great to see that Mahanagar Gas has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of ₹10.00 in 2017 to the most recent total annual payment of ₹25.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Mahanagar Gas 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.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 3.7% per year. While growth may be thin on the ground, Mahanagar Gas could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Mahanagar Gas' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Mahanagar Gas you should be aware of, and 1 of them is potentially serious. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.