TVS Motor (NSE:TVSMOTOR) Is Increasing Its Dividend To ₹10.00

TVS Motor Company Limited's (NSE:TVSMOTOR) dividend will be increasing from last year's payment of the same period to ₹10.00 on 19th of April. This takes the annual payment to 0.3% of the current stock price, which unfortunately is below what the industry is paying.

Estimates Indicate TVS Motor's Dividend Coverage Likely To Improve

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, TVS Motor was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 163.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 9.8%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for TVS Motor

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ₹1.50, compared to the most recent full-year payment of ₹8.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that TVS Motor has grown earnings per share at 23% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think TVS Motor's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for TVS Motor that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St 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 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.