Here's What We Like About TVS Motor's (NSE:TVSMOTOR) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TVS Motor Company Limited (NSE:TVSMOTOR) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 30th of March to receive the dividend, which will be paid on the 23rd of April.

TVS Motor's upcoming dividend is ₹1.40 a share, following on from the last 12 months, when the company distributed a total of ₹3.50 per share to shareholders. Last year's total dividend payments show that TVS Motor has a trailing yield of 0.6% on the current share price of ₹570.65. If you buy this business for its dividend, you should have an idea of whether TVS Motor's dividend is reliable and sustainable. So we need to investigate whether TVS Motor can afford its dividend, and if the dividend could grow.

See our latest analysis for TVS Motor

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately TVS Motor's payout ratio is modest, at just 46% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that TVS Motor's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, TVS Motor has lifted its dividend by approximately 19% a year on average.

To Sum It Up

Has TVS Motor got what it takes to maintain its dividend payments? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and TVS Motor is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while TVS Motor has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for TVS Motor that we strongly recommend you have a look at before investing in the company.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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