Tata Elxsi (NSE:TATAELXSI) Will Pay A Larger Dividend Than Last Year At ₹60.60

Tata Elxsi Limited (NSE:TATAELXSI) will increase its dividend from last year's comparable payment on the 3rd of August to ₹60.60. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Tata Elxsi

Tata Elxsi's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Tata Elxsi 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 42.6%. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was ₹3.50, compared to the most recent full-year payment of ₹60.60. This means that it has been growing its distributions at 33% per annum over that time. 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tata Elxsi has seen EPS rising for the last five years, at 26% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Tata Elxsi will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Tata Elxsi 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Tata Elxsi (of which 1 can't be ignored!) you should know about. Is Tata Elxsi 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.