Just Two Days Till Tata Consultancy Services Limited (NSE:TCS) Will Be Trading Ex-Dividend

Readers hoping to buy Tata Consultancy Services Limited (NSE:TCS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Tata Consultancy Services' shares before the 15th of October in order to be eligible for the dividend, which will be paid on the 4th of November.

The company's next dividend payment will be ₹11.00 per share. Last year, in total, the company distributed ₹126 to shareholders. Based on the last year's worth of payments, Tata Consultancy Services stock has a trailing yield of around 4.2% on the current share price of ₹3028.30. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. That's why it's good to see Tata Consultancy Services paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Tata Consultancy Services generated enough free cash flow to afford its dividend. The company paid out 100% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While Tata Consultancy Services's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Tata Consultancy Services to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Tata Consultancy Services

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Tata Consultancy Services earnings per share are up 9.7% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tata Consultancy Services has delivered 21% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Tata Consultancy Services worth buying for its dividend? Tata Consultancy Services delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 100% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about Tata Consultancy Services from a dividend perspective.

So if you want to do more digging on Tata Consultancy Services, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 1 warning sign for Tata Consultancy Services that we recommend you consider before investing in the business.

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.