The board of Tata Consultancy Services Limited (NSE:TCS) has announced that it will be increasing its dividend by 40% on the 5th of August to ₹7.00. Based on the announced payment, the dividend yield for the company will be 1.2%, which is fairly typical for the industry.
Tata Consultancy Services' Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Tata Consultancy Services was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 18.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 41%, which is in the range that makes us comfortable with the sustainability of the dividend.
Tata Consultancy Services Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was ₹7.00, compared to the most recent full-year payment of ₹38.00. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Tata Consultancy Services Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Tata Consultancy Services has seen EPS rising for the last five years, at 7.9% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Tata Consultancy Services' Dividend
Overall, a dividend increase is always good, and we think that Tata Consultancy Services is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Tata Consultancy Services that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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