Tata Steel (NSE:TATASTEEL) Is Paying Out A Dividend Of ₹3.60

Tata Steel Limited (NSE:TATASTEEL) will pay a dividend of ₹3.60 on the 14th of August. This means the annual payment will be 2.3% of the current stock price, which is lower than the industry average.

See our latest analysis for Tata Steel

Tata Steel's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Tata Steel is unprofitable despite paying a dividend, and it is paying out 215% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 40%, which we would be comfortable to see continuing.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹0.80 in 2014, and the most recent fiscal year payment was ₹3.60. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. 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.

Tata Steel May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.1% a year for the past five years, which isn't massive but still better than seeing them shrink. With no profits, we don't think Tata Steel has much potential to grow the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tata Steel's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Tata Steel 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Tata Steel (of which 2 are a bit unpleasant!) you should know about. Is Tata Steel not quite the opportunity you were looking for? Why not check out our selection of top 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.