Transport Corporation of India Limited (NSE:TCI) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 13th of November will not receive this dividend, which will be paid on the 5th of December.
Transport Corporation of India's next dividend payment will be ₹1.0 per share, and in the last 12 months, the company paid a total of ₹1.8 per share. Based on the last year's worth of payments, Transport Corporation of India stock has a trailing yield of around 0.6% on the current share price of ₹281.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Transport Corporation of India paid out just 8.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Transport Corporation of India generated enough free cash flow to afford its dividend. It paid out 9.9% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Transport Corporation of India's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Transport Corporation of India's earnings per share have been growing at 15% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Transport Corporation of India has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Transport Corporation of India got what it takes to maintain its dividend payments? Transport Corporation of India has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
Wondering what the future holds for Transport Corporation of India? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.