Tata Power (NSE:TATAPOWER) Is Increasing Its Dividend To ₹1.75

By
Simply Wall St
Published
May 10, 2022
NSEI:TATAPOWER
Source: Shutterstock

The board of The Tata Power Company Limited (NSE:TATAPOWER) has announced that it will be increasing its dividend on the 6th of August to ₹1.75. Even though the dividend went up, the yield is still quite low at only 0.8%.

See our latest analysis for Tata Power

Tata Power's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Tata Power is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 26.0% over the next year. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

historic-dividend
NSEI:TATAPOWER Historic Dividend May 10th 2022

Tata Power Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was ₹1.25 in 2012, and the most recent fiscal year payment was ₹1.75. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Tata Power has impressed us by growing EPS at 19% per year over the past five years. Tata Power definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Tata Power's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Tata Power is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Tata Power (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.