Transport Corporation of India (NSE:TCI) Has Affirmed Its Dividend Of ₹2.00

The board of Transport Corporation of India Limited (NSE:TCI) has announced that it will pay a dividend on the 26th of August, with investors receiving ₹2.00 per share. Based on this payment, the dividend yield will be 0.8%, which is fairly typical for the industry.

View our latest analysis for Transport Corporation of India

Transport Corporation of India's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Transport Corporation of India's dividend was only 15% of earnings, however it was paying out 96% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 39.9%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹1.00 in 2014, and the most recent fiscal year payment was ₹7.00. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Transport Corporation of India has grown earnings per share at 19% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Transport Corporation of India's prospects of growing its dividend payments in the future.

Our Thoughts On Transport Corporation of India's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Transport Corporation of India's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 1 warning sign for Transport Corporation of India that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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