Mazda Limited (NSE:MAZDALTD) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 12th of September in order to be eligible for this dividend, which will be paid on the 26th of October.
Mazda's next dividend payment will be ₹9.00 per share, on the back of last year when the company paid a total of ₹9.00 to shareholders. Calculating the last year's worth of payments shows that Mazda has a trailing yield of 2.5% on the current share price of ₹348.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Mazda can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Mazda paying out a modest 26% of its earnings.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Mazda, with earnings per share up 7.1% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mazda has delivered 16% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Mazda worth buying for its dividend? Earnings per share growth has been growing somewhat, and Mazda is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Mazda is halfway there. There's a lot to like about Mazda, and we would prioritise taking a closer look at it.
Want to learn more about Mazda? Here's a visualisation of its historical rate of revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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