Interested In Hindustan Petroleum's (NSE:HINDPETRO) Upcoming ₹19.25 Dividend? You Have Three Days Left

Hindustan Petroleum Corporation Limited (NSE:HINDPETRO) is about to trade ex-dividend in the next 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before 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 25th of September.

The company's next dividend payment will be ₹19.25 per share, on the back of last year when the company paid a total of ₹38.50 to shareholders. Based on the last year's worth of payments, Hindustan Petroleum stock has a trailing yield of around 9.8% on the current share price of ₹393.05. 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! So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see Hindustan Petroleum paying out a modest 29% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

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 Hindustan Petroleum

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hindustan Petroleum's earnings per share have plummeted approximately 30% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hindustan Petroleum has delivered an average of 27% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Is Hindustan Petroleum worth buying for its dividend? Hindustan Petroleum has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about Hindustan Petroleum from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 3 warning signs with Hindustan Petroleum (at least 1 which is concerning), and understanding these should be part of your investment process.

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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.