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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that TD Power Systems Limited (NSE:TDPOWERSYS) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 1st of August, you won't be eligible to receive this dividend, when it is paid on the 11th of September.
TD Power Systems's next dividend payment will be ₹2.00 per share, and in the last 12 months, the company paid a total of ₹2.00 per share. Last year's total dividend payments show that TD Power Systems has a trailing yield of 1.4% on the current share price of ₹147. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether TD Power Systems can afford its dividend, and if the dividend could grow.
See our latest analysis for TD Power Systems
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, TD Power Systems paid out 204% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser.
Click here to see how much of its profit TD Power Systems paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. TD Power Systems's earnings per share have plummeted approximately 32% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TD Power Systems's dividend payments are broadly unchanged compared to where they were eight years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
Final Takeaway
Is TD Power Systems an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 204% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.