Committee for Tech Mahindra Limited (NSE:TECHM) announced that it will pay a dividend on August 9, and investors will receive INR 30.00 per share. That means the annual payout is 4.5% of the current share price, which is above the industry average.
Check out our latest analysis for Tech Mahindra
Tech Mahindra’s Payment has solid earnings
Impressive dividend yields are good, but this doesn’t matter if the payouts can’t be sustained. However, based on the latest payment, Tech Mahindra was earning enough to cover the dividend quite comfortably. The company earns enough to make the dividend viable, but the cash payout ratio of 91% shows that most of the cash is being returned to shareholders, which could limit prospects for further growth.
Looking ahead, earnings per share are forecast to grow 28.4% over the next year. If the dividend continues on this path, the payout ratio could be 60% by next year, which we think can be quite sustainable going forward.
The company’s dividend history has been marked by volatility, with at least one reduction in the last 10 years. As of 2012, the annual payment was then INR 1.00, compared to the latest payment for a full year of INR 45.00. This means that during that time it increased its distribution by 46% per year. Dividends have grown rapidly during this time, but with cuts in the past we’re not sure this stock will be a reliable source of income in the future.
It looks like the dividend will grow
Given that the dividend has been reduced in the past, we need to check whether earnings are growing and whether this could lead to stronger dividends in the future. Tech Mahindra has seen EPS growth for the last five years at 15% per annum. With decent growth and a low payout ratio, we think this bodes well for Tech Mahindra’s prospects of increasing its dividend payout going forward.
Overall, we don’t think this company is a big dividend earner, even though the dividend hasn’t been cut this year. While Tech Mahindra earns enough to cover its dividend, we are generally unimpressed with its future prospects. We don’t think Tech Mahindra is a great stock to add to your portfolio if your focus is income.
It is important to note that companies that have a consistent dividend policy will generate more investor confidence than those that have an erratic policy. However, investors should consider a number of factors other than dividend payouts when analyzing a company. Taking the discussion a little further, we identified 1 warning sign for Tech Mahindra that investors need to be aware of going forward. Looking for more high yielding dividend ideas? Try ours collecting strong dividend payers.
Valuation is complex, but we help make it simple.
Find out if Tech Mahindra is potentially overstated or understated by checking our comprehensive analysis, which includes fair value estimates, risks and caveats, dividends, insider transactions and financial condition.
Check out the free analysis
Have feedback on this article? Worried about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplevallst.com.
This Simply Wall St article 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 into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simpli Wall St has no position in any of the stocks mentioned.