Tech Mahindra's 3% yield: paid to wait for 15% margins

Tech Mahindra Limited (NSE: TECHM) paid a record ₹51 per share for FY26. At about ₹1,627, that is a yield near 3.1%, while margins keep climbing. What happened Q1 FY27 revenue rose 17.7% to ₹15,712 crore. Net profit grew 28.4% to ₹1,465 crore, though it came in below street estimates. EBIT margin rose to 14.4% from 11.1% a year ago. Deal wins hit $1,078 million, up 33%, the third straight billion-dollar quarter. Free cash flow was $167 million. Why it matters The dividend comes from a turnaround, not a mature cash cow. Margins have now expanded for 11 straight quarters. Management targets 15% EBIT margin in FY27. Every extra point of margin adds roughly ₹600 crore of yearly operating profit. My view Look past the rupee headline. In dollars, revenue grew only 6.1%. A weaker rupee did most of the work. So profit growth leans on cost cuts and currency, not strong demand. The payout is the catch. FY26 dividends were 104% of profit and 91% of free cash flow. The company cannot pay more than it earns for long. From here, the dividend grows only if profit grows. The good part: margin gains still have room. If EBIT margin reaches 15% and dollar growth holds near 6%, earnings can grow in the low teens. Add a 3% yield and holders get a fair return for waiting. At about 28 times trailing earnings, though, the stock is priced for that plan to work. What I am watching Q2 FY27 results in mid-October. Margin moving toward 15% and deal wins above $1 billion keep the story on track. On the chart, ₹1,500 has to hold. The 52-week high of ₹1,854 is the upside marker. My stance: Hold for income and recovery. Accumulate on dips near ₹1,500, not after a sharp rally. Disclosure: I do not hold a position in Tech Mahindra Limited at the time of writing. This is not investment advice.