TVS Electronics (NSE:TVSELECT) Will Pay A Smaller Dividend Than Last Year

TVS Electronics Limited's (NSE:TVSELECT) dividend is being reduced from last year's payment covering the same period to ₹1.00 on the 9th of September. Based on this payment, the dividend yield will be 0.3%, which is lower than the average for the industry.

See 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.

Looking forward, EPS could fall by 51.3% if the company can't turn things around from the last few years. 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 dividend has gone from an annual total of ₹0.50 in 2017 to the most recent total annual payment of ₹1.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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. TVS Electronics' EPS has fallen by approximately 51% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

TVS Electronics' Dividend Doesn't Look Great

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, TVS Electronics has 4 warning signs (and 1 which is concerning) we think you should know about. 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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