Is It Smart To Buy Hindustan Petroleum Corporation Limited (NSE:HINDPETRO) Before It Goes Ex-Dividend?

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 Hindustan Petroleum Corporation Limited (NSE:HINDPETRO) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Accordingly, Hindustan Petroleum investors that purchase the stock on or after the 14th of August will not receive the dividend, which will be paid on the 21st of September.

The company's next dividend payment will be ₹10.50 per share, and in the last 12 months, the company paid a total of ₹10.50 per share. Looking at the last 12 months of distributions, Hindustan Petroleum has a trailing yield of approximately 2.6% on its current stock price of ₹409.50. 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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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. Fortunately Hindustan Petroleum's payout ratio is modest, at just 33% of profit. A useful secondary check can be to evaluate whether Hindustan Petroleum generated enough free cash flow to afford its dividend. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.

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.

Check out our latest analysis for Hindustan Petroleum

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Hindustan Petroleum has grown its earnings rapidly, up 33% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hindustan Petroleum has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Hindustan Petroleum? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Hindustan Petroleum, and we would prioritise taking a closer look at it.

In light of that, while Hindustan Petroleum has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Hindustan Petroleum and you should be aware of them before buying any shares.

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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.