Tata Chemicals' (NSE:TATACHEM) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Tata Chemicals Limited (NSE:TATACHEM) has announced that it will be increasing its dividend on the 5th of August to ₹12.50. This takes the dividend yield from 1.3% to 1.3%, which shareholders will be pleased with.

Check out our latest analysis for Tata Chemicals

Tata Chemicals' Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Tata Chemicals was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

The next year is set to see EPS grow by 14.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Tata Chemicals Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from ₹10.00 to ₹12.50. This means that it has been growing its distributions at 2.3% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Tata Chemicals Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Tata Chemicals has seen EPS rising for the last five years, at 7.3% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Tata Chemicals' prospects of growing its dividend payments in the future.

Our Thoughts On Tata Chemicals' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Tata Chemicals' payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Tata Chemicals has been making. We don't think Tata Chemicals is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Tata Chemicals analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.