The advice of Tata Consultancy Services Limited (NSE: TCS) announced that it will increase its dividend by 40% on August 5 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.
Check out our latest review for Tata Consultancy Services
Tata Consultancy Services revenues easily cover distributions
Unless the payments are sustainable, the dividend yield doesn’t mean much. Before making this announcement, Tata Consultancy Services was easily earning enough to cover the dividend. As a result, much of what she earned was reinvested in the business.
Over the next year, EPS is expected to increase by 18.1%. If the dividend continues according to recent trends, we estimate that the payout ratio will be 41%, which is in a range that makes us comfortable with the sustainability of the dividend.
Tata Consultancy Services has a strong track record
The company has been paying a dividend for a long time, and it’s fairly stable, which gives us confidence in the future dividend potential. Since 2011, the first annual payment was 7.00, compared to 38.00 for the last annual payment. This implies that the company has increased its distributions at an annual rate of approximately 18% over this period. Rapidly growing dividends over a long period of time are a very valuable feature for an income stock.
Tata Consultancy Services could increase its dividend
Some investors will be eager to buy a portion of the company’s stock based on its dividend history. Tata Consultancy Services has seen its EPS increase over the past five years, to 7.9% per year. EPS growth bodes well for the dividend, as does the low payout ratio the company is currently reporting.
We really like the dividend from Tata Consultancy Services
Overall, a dividend increase is always good, and we think Tata Consultancy Services is a solid income stock thanks to its track record and growing earnings. Distributions are quite easily covered by profits, which are also converted into cash flow. Overall, this ticks a lot of the boxes that we look for when choosing an income stock.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have selected 1 warning sign for Tata Consultancy Services that investors should be aware of before committing capital to this stock. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
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