TCS : Rs. 16,000 buyback of shares & Has Maintained a High Dividend Payout

TCS Has Maintained a High Payout...

It's India's biggest buyback. Yesterday (Feb. 20- 2017), the board of TCS approved a Rs. 16,000 (Rs. 160 billion) buyback of shares, subject to shareholder approval. The number of shares to be bought back, about 56 million, is nearly 3% of the company's equity capital. 

The price? Rs. 2,850 per share.

The stock price of TCS ended higher by 4% yesterday. But just how significant is this event?

As today's chart shows, TCS has been quite generous with dividends in the past. TCS has paid out almost 45% of its profits between FY11 and FY16. This would be the company's first buyback.

TCS Has Maintained a High Payout

While the company's payout has increased steadily, cash has continued to build up on the balance sheet. ..

This is due to two reasons, very few acquisitions and no buy backs. 

The excess cash (over Rs. 430 billion) has been a drag on its return on equity which stands at about 33%. This compares poorly with its return on invested capital which is about 60%. 

So will this one time bonanza sharply turn around the prospects of the stock? 

Equitymaster.com believe, it's unlikely in the absence of a clear policy about how the management will return cash to shareholders going forward. But at least the first step has been taken.

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