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The board of Tata Consultancy Services Limited (NSE: TCS) has announced that it will increase its dividend by 40% to 7.00 yen on August 5th. Based on the announced payment, the company’s dividend yield will be 1.2%, which is pretty typical for the industry.

Check out our latest analysis for Tata Consultancy Services

Tata Consultancy Services’ income slightly covers the distributions

Unless the payments are sustainable, the dividend yield doesn’t mean too much. Prior to this announcement, Tata Consultancy Services was making easy enough earnings to cover the dividend. As a result, much of the revenue was reinvested in the company.

Earnings per share are expected to increase by 18.1% over the next year. If the dividend is in line with recent trends, we estimate the payout ratio at 41%, which is in a range that gives us satisfaction with the sustainability of the dividend.

NSEI: TCS Historic Dividend July 11, 2021

Tata Consultancy Services has a solid track record

The company has been paying a dividend for a long time, and it’s quite stable, which gives us confidence in its future dividend potential. As of 2011, the first annual payment was 7.00 yen, compared to the last full year payment of 38.00 yen. This implies that the company increased its payouts at an annual rate of about 18% during that term. Rapidly growing dividends over a long period of time are a very valuable trait of an income stock.

Tata Consultancy Services could increase its dividend

Some investors will buy a portion of the company’s stock based on its dividend history. Tata Consultancy Services saw earnings per share grow 7.9% per year for the past five years. The growth in EPS bodes well for the dividend, as does the current low payout ratio.

We really like the dividend from Tata Consultancy Services

Overall, a dividend hike is always good, and we believe Tata Consultancy Services is a high-earning stock thanks to its track record and growing profits. Distributions are quite simply covered by income, which is also converted into cash flows. All in all, this checks many of the boxes we look for when choosing an income stock.

Companies with stable dividend policies are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. At the same time, there are other factors our readers should consider before investing capital in any stock. For example, we picked out 1 warning sign for Tata Consultancy Services investors should know before investing capital in this stock. Looking for more high-yield dividend ideas? Try our curated list of strong dividend payers.

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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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