TD Power Systems (NSE:TDPOWERSYS) Has Announced That It Will Be Increasing Its Dividend To ₹2.50

By
Simply Wall St
Published
September 06, 2021
NSEI:TDPOWERSYS
Source: Shutterstock

TD Power Systems Limited's (NSE:TDPOWERSYS) dividend will be increasing to ₹2.50 on 27th of October. This takes the dividend yield from 0.8% to 0.8%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that TD Power Systems' stock price has increased by 55% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for TD Power Systems

TD Power Systems' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, TD Power Systems' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 72.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 6.0% by next year, which we think can be pretty sustainable going forward.

historic-dividend
NSEI:TDPOWERSYS Historic Dividend September 7th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was ₹2.00 in 2011, and the most recent fiscal year payment was ₹2.50. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. TD Power Systems has seen EPS rising for the last five years, at 72% per annum. 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think TD Power Systems is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for TD Power Systems that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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