TD Power Systems (NSE:TDPOWERSYS) Is Increasing Its Dividend To ₹3.50

TD Power Systems Limited (NSE:TDPOWERSYS) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of October to ₹3.50. This makes the dividend yield about the same as the industry average at 0.6%.

Check out our latest analysis for TD Power Systems

TD Power Systems' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. TD Power Systems is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 65.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 8.0%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from ₹2.00 total annually to ₹3.50. This means that it has been growing its distributions at 5.8% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that TD Power Systems has grown earnings per share at 66% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On TD Power Systems' Dividend

In summary, while it's always good to see the dividend being raised, we don't think TD Power Systems' payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for TD Power Systems that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.