Titan Company Limited The stock (NSE: TITAN) is set to trade ex-dividend in three days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the registration date. Thus, you can buy Titan shares before July 22 in order to receive the dividend that the company will pay on September 1.
The company’s upcoming dividend is 4.00 per share, following the last 12 months when the company has distributed a total of 4.00 per share to shareholders. Calculating the value of last year’s payouts shows Titan has a rolling 0.2% return on the current share price of 1695.35. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest review for Titan
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. Titan paid a comfortable 36% of its profits last year. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. The good thing is that dividends were well covered by free cash flow, with the company paying 8.9% of its cash flow last year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. That’s why it’s a relief to see Titan’s earnings per share increase 7.6% per year over the past five years. Management reinvested more than half of the company’s profits back into the business, and the company was able to increase its profits with this retained capital. Organizations that reinvest heavily in themselves typically get stronger over time, which can bring compelling benefits like higher profits and dividends.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Titan has generated dividend growth of 18% per year on average over the past 10 years. It is encouraging to see the company raising its dividends as profits rise, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Titan? Earnings per share growth has increased somewhat, and Titan pays less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the company, but it also helps to increase the dividend over time. We’d rather see earnings grow faster, but the best long-term dividend-paying stocks typically combine significant earnings per share growth with a low payout ratio, and Titan is halfway there. There’s a lot to love about Titan, and we’d prioritize taking a closer look.
Although it is tempting to invest in Titan purely for dividends, you should always be aware of the risks involved. In terms of investment risks, we have identified 2 warning signs with Titan and understanding them should be part of your investment process.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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