Tata Consultancy Services (TCS), India’s largest IT services company, is set to declare another generous interim dividend on January 11th, 2024 – continuing its history of bumper payouts to shareholders.
Healthy Profits And Cashflows Support Higher Dividend
TCS has gone from strength to strength in recent years, with industry-leading profit margins and Return on Equity. For the 9 months ending December 2023, TCS registered a net profit of Rs 95,000 crores on revenues of Rs 3,00,000 crores – implying profit margins of over 31%.
Its operating cash flows remain robust at over Rs 75,000 crores for the 9 month period. The company has negligible debt on its balance sheet. This provides TCS with a strong capability to pay out a large portion of its profits as dividends annually.
Market analysts expect the interim dividend for 2024 to be announced at Rs 65 per share. This translates to a dividend yield of nearly 5% at current prices.
TCS Dividend History – One Of The Highest And Most Consistent
TCS has an impeccable track record when it comes to dividends. For over a decade now, it has consistently paid out over 80% of its profits as dividends annually – making it among the highest dividend payout ratios globally among mega-cap technology companies.
Last year in 2023, TCS announced a total dividend of Rs 75 per share – consisting of interim dividends of Rs 50, Rs 45 and Rs 65 per share.
This translated to a staggering total dividend yield of 8.5% for shareholders – among the highest in the world for a company of TCS’s size and profitability.
Why TCS Rewards Shareholders So Generously
There are a few key reasons why TCS maintains such a generous dividend policy:
1. Strong Profitability And Cash Generation
As discussed earlier, TCS has industry-leading profit margins and stable cash flows – providing it the balance sheet strength to pay high dividends consistently without impacting future growth plans.
2. Backing From Tata Group
TCS enjoys the full backing and loyalty of parent conglomerate Tata Group – one of India’s largest and most respected business groups. Unlike many Western companies, Tata believes in maintaining a triple bottom line – where shareholders are as important as customers, employees and society at large. Rewarding TCS shareholders generously with dividends aligns with Tata Group principles.
3. Lower Re-Investment Needs
Unlike fast growing technology startups, TCS operates in the mature IT services industry which grows at a steady mid-teens rate annually. TCS doesn’t need to re-invest too much of its profits back into the business to drive growth. This allows it to return surplus cash to shareholders as dividends.
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Interim Dividend Estimates For 2024
If TCS maintains its payout ratio philosophy, the interim dividend for 2024 is expected to be around Rs 65 per share. At current market prices, this would imply a dividend yield of nearly 5%.
Most brokerages have built this interim dividend estimate into their 12 month price targets for TCS stock as well – with projected upside of over 15% including dividends.
Domestic mutual funds have also been using market corrections to steadily increase their holdings in TCS stock – attracted by its high dividend yields which boost their overall fund returns.
With industry-leading margins, a dominant market position and continuing growth momentum, TCS looks well placed to continue its high dividend tradition for years to come. For income-focused investors, TCS stock remains a solid compounding play despite premium valuations.