LTIMindtree's (NSE:LTIM) Dividend Will Be Increased To ₹40.00

LTIMindtree Limited (NSE:LTIM) will increase its dividend from last year's comparable payment on the 16th of August to ₹40.00. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

Check out our latest analysis for LTIMindtree

LTIMindtree's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. LTIMindtree was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

The next year is set to see EPS grow by 64.6%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

LTIMindtree's Dividend Has Lacked Consistency

It's comforting to see that LTIMindtree has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2016, the dividend has gone from ₹13.70 total annually to ₹60.00. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. LTIMindtree has seen EPS rising for the last five years, at 18% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

An additional note is that the company has been raising capital by issuing stock equal to 69% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On LTIMindtree's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments LTIMindtree has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 4 warning signs for LTIMindtree (of which 2 shouldn't be ignored!) you should know about. Is LTIMindtree not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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