How Does Tata Consultancy Services Limited (NSE:TCS) Fare As A Dividend Stock?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Tata Consultancy Services Limited (NSEI:TCS) has returned to shareholders over the past 10 years, an average dividend yield of 1.00% annually. Does Tata Consultancy Services tick all the boxes of a great dividend stock? Below, I'll take you through my analysis. View our latest analysis for Tata Consultancy Services

5 questions to ask before buying a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?
• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
• Has it increased its dividend per share amount over the past?
• Is its earnings sufficient to payout dividend at the current rate?
• Will it have the ability to keep paying its dividends going forward?

Does Tata Consultancy Services pass our checks?

The company currently pays out 36.83% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect TCS's payout to increase to 42.11% of its earnings, which leads to a dividend yield of 2.24%. In addition to this, EPS should increase to ₹144.39. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again. Relative to peers, Tata Consultancy Services generates a yield of 1.62%, which is high for IT stocks but still below the market's top dividend payers.

Next Steps:

With this in mind, I definitely rank Tata Consultancy Services as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for TCS’s future growth? Take a look at our free research report of analyst consensus for TCS’s outlook.
2. Valuation: What is TCS worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TCS is currently mispriced by the market.
3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.