Read This Before Considering Tata Technologies Limited (NSE:TATATECH) For Its Upcoming ₹11.70 Dividend

Readers hoping to buy Tata Technologies Limited (NSE:TATATECH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Tata Technologies' shares before the 16th of June to receive the dividend, which will be paid on the 23rd of July.

The company's next dividend payment will be ₹11.70 per share, and in the last 12 months, the company paid a total of ₹8.35 per share. Based on the last year's worth of payments, Tata Technologies has a trailing yield of 1.1% on the current stock price of ₹784.95. If you buy this business for its dividend, you should have an idea of whether Tata Technologies's dividend is reliable and sustainable. So we need to investigate whether Tata Technologies can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tata Technologies is paying out an acceptable 50% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Tata Technologies

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Tata Technologies's earnings have been skyrocketing, up 22% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Tata Technologies could have strong prospects for future increases to the dividend.

Given that Tata Technologies has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Is Tata Technologies an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Tata Technologies's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 50% and 62% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tata Technologies today.

Ever wonder what the future holds for Tata Technologies? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for strong dividend payers, we recommend checking 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.