Honeywell Automation India Limited (NSE:HONAUT) Passed Our Checks, And It's About To Pay A ₹110.00 Dividend
Readers hoping to buy Honeywell Automation India Limited (NSE:HONAUT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Honeywell Automation India's shares on or after the 17th of July, you won't be eligible to receive the dividend, when it is paid on the 28th of August.
The company's next dividend payment will be ₹110.00 per share, on the back of last year when the company paid a total of ₹110 to shareholders. Calculating the last year's worth of payments shows that Honeywell Automation India has a trailing yield of 0.3% on the current share price of ₹38175.00. If you buy this business for its dividend, you should have an idea of whether Honeywell Automation India's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Honeywell Automation India is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Honeywell Automation India generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's positive to see that Honeywell Automation India's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Honeywell Automation India
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Honeywell Automation India, with earnings per share up 2.7% on average over the last five years. Honeywell Automation India is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Honeywell Automation India has lifted its dividend by approximately 27% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Honeywell Automation India for the upcoming dividend? Earnings per share have been growing moderately, and Honeywell Automation India is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Honeywell Automation India is halfway there. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for Honeywell Automation India? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.