Market experts bullish on Mahindra and Mahindra Financial Services has recommended buy
Stocks to buy today: Mahindra & Mahindra Financial Services
CE- 290
target- 17
S/L – 5
The earnings coverage for Mahindra & Mahindra Financial Services’ dividend payment appears solid. However, there are some concerns about the sustainability of the payments due to negative free cash flows. While earnings easily covered the dividend in the past, it is crucial to consider cash flow as a more important factor. Relying solely on earnings may not be prudent when assessing the long-term sustainability of the dividend.
Looking ahead, the company is expected to experience significant growth in earnings per share (EPS) of approximately 67.7% in the next year. If the dividend follows recent trends, the payout ratio could be around 22% by the following year, which falls within a sustainable range.
Analyzing the dividend history, Mahindra & Mahindra Financial Services has a long track record of dividends. However, there has been at least one dividend cut in the past decade. The annual payment in 2013 was ₹2.80, compared to the most recent full-year payment of ₹6.00, resulting in a compound annual growth rate (CAGR) of approximately 7.9% over that period. While it’s positive to see the dividend growing at a decent rate, caution is warranted due to the past dividend reduction.
For the company to continue growing its dividend, it is crucial to assess if earnings are also growing. Over the past five years, Mahindra & Mahindra Financial Services’ earnings per share has declined by approximately 3.8% per annum. If this downward trend continues, the company may face the difficult decision of reducing or even halting the dividend, which is contrary to dividend growth. However, there is some optimism as earnings are predicted to rise in the next 12 months, but it is important to monitor if this becomes a sustainable trend.
In summary, while Mahindra & Mahindra Financial Services is currently raising its dividend, it may not be an ideal income stock. Despite earnings coverage, the lack of positive cash flows raises concerns about the sustainability of the dividend. Investors seeking income investments may find better opportunities elsewhere.
Please note that this analysis is based on available information and investors should conduct their own research and consider individual circumstances before making investment decisions.
