Thomas Cook (India) Limited (NSE:THOMASCOOK) Looks Interesting, And It’s About To Pay A Dividend

Thomas Cook (India) Limited (NSE:THOMASCOOK) stock is about to trade ex-dividend in three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company’s books on the record date. In other words, investors can purchase Thomas Cook (India)’s shares before the 27th of August in order to be eligible for the dividend, which will be paid on the 10th of October.

The company’s next dividend payment will be ₹0.50 per share, and in the last 12 months, the company paid a total of ₹0.50 per share. Based on the last year’s worth of payments, Thomas Cook (India) has a trailing yield of 0.4% on the current stock price of ₹113.17. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Thomas Cook (India) is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 5.4% of its free cash flow last year.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

See our latest analysis for Thomas Cook (India)

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Thomas Cook (India)’s earnings have been skyrocketing, up 62% per annum for the past five years. Thomas Cook (India) earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Thomas Cook (India) has delivered an average of 2.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Thomas Cook (India) is keeping back more of its profits to grow the business.

The Bottom Line

Has Thomas Cook (India) got what it takes to maintain its dividend payments? It’s great that Thomas Cook (India) is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Thomas Cook (India) looks solid on this analysis overall, and we’d definitely consider investigating it more closely.

In light of that, while Thomas Cook (India) has an appealing dividend, it’s worth knowing the risks involved with this stock. For example – Thomas Cook (India) has 1 warning sign we think you should be aware of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.