Tata Investment (NSE:TATAINVEST) Is Reducing Its Dividend To ₹48.00

Tata Investment Corporation Limited (NSE:TATAINVEST) has announced it will be reducing its dividend payable on the 27th of July to ₹48.00, which is 13% lower than what investors received last year for the same period. Despite the cut, the dividend yield of 2.6% will still be comparable to other companies in the industry.

See our latest analysis for Tata Investment

Tata Investment's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, earnings per share could rise by 15.9% over the next year if the trend from the last few years continues. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 73% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was ₹16.00, compared to the most recent full-year payment of ₹55.00. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Tata Investment has been growing its earnings per share at 16% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Tata Investment's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Tata Investment 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.