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The board of Tata Consultancy Services Limited (NSE: TCS) has announced that it will increase its dividend to £ 15.00 on June 14th. With the announced payment, the dividend yield increases to 1.2%, which is the industry average.

Check out our latest analysis for Tata Consultancy Services

The earnings from Tata Consultancy Services easily cover the distributions

We want a dividend to be consistent over the long term. It is therefore important to check whether it is sustainable. Prior to this announcement, Tata Consultancy Services’ dividend was comfortably covered by both cash flow and earnings. This suggests that much of the profits will be reinvested in the business to fuel growth.

EPS growth of 23.3% is forecast for the next year. If the dividend continues in line with recent trends, we estimate the payout ratio at 41%, which is in the range that familiarizes us with the sustainability of the dividend.

NSEI: TCS Historic Dividend May 21, 2021

Tata Consultancy Services has a solid track record

The company has a long history of paying stable dividends. Since 2011 the dividend has increased from £ 5.00 to £ 38.00. This corresponds to an average annual growth rate (CAGR) of approximately 22% per year over this period. So dividends have risen pretty quickly, and what’s even more impressive is that they haven’t seen any significant declines over this period.

Tata Consultancy Services could raise its dividend

Investors in the company will be happy to have received dividend income for some time. We are pleased to see that Tata Consultancy Services has increased earnings per share by 6.2% per annum over the past five years. The company pays shareholders a reasonable profit and increases profits in proportion. So we think it could be a decent dividend stock.

Tata Consultancy Services looks like a great dividend stock

Overall, we believe this could be an attractive income stock, and it will only get better by paying a higher dividend this year. The company makes easy enough to cover its dividend payments, and it’s great to see those profits turn into cash flow. All in all, this activates many of the boxes we look for when selecting an income stock.

Market movements confirm how high a consistent dividend policy is compared to a more unpredictable one. At the same time, there are other factors our readers should consider before investing capital in any stock. Companies with rising earnings tend to be the best dividend stocks in the long run. See what the 34 analysts we track forecast for Tata Consultancy Services free with public analyst estimates for the company. If you’re a dividend investor, you should also check out ours curated list of high performing dividend stocks.

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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. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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