TVS Electronics (NSE:TVSELECT) Has Announced That Its Dividend Will Be Reduced To ₹1.00

TVS Electronics Limited (NSE:TVSELECT) has announced that on 9th of September, it will be paying a dividend of₹1.00, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for TVS Electronics

TVS Electronics Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the dividend made up 667% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to fall by 51.3% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 1,439%, which could put the dividend in jeopardy if the company's earnings don't improve.

TVS Electronics' Dividend Has Lacked Consistency

It's comforting to see that TVS Electronics has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was ₹0.50 in 2017, and the most recent fiscal year payment was ₹1.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though TVS Electronics' EPS has declined at around 51% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

We're Not Big Fans Of TVS Electronics' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for TVS Electronics you should be aware of, and 1 of them makes us a bit uncomfortable. Is TVS Electronics 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.

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