There's A Lot To Like About Indian Hume Pipe's (NSE:INDIANHUME) Upcoming ₹5.00 Dividend
The Indian Hume Pipe Company Limited (NSE:INDIANHUME) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Indian Hume Pipe's shares on or after the 17th of July, you won't be eligible to receive the dividend, when it is paid on the 2nd of September.
The company's next dividend payment will be ₹5.00 per share, on the back of last year when the company paid a total of ₹2.00 to shareholders. Calculating the last year's worth of payments shows that Indian Hume Pipe has a trailing yield of 0.5% on the current share price of ₹367.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Indian Hume Pipe is paying out just 7.5% 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 Indian Hume Pipe generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.
It's positive to see that Indian Hume Pipe'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.
View our latest analysis for Indian Hume Pipe
Click here to see how much of its profit Indian Hume Pipe paid out over the last 12 months.
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. It's encouraging to see Indian Hume Pipe has grown its earnings rapidly, up 25% a year for the past five years. Indian Hume Pipe 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. In the past 10 years, Indian Hume Pipe has increased its dividend at approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Indian Hume Pipe is keeping back more of its profits to grow the business.
The Bottom Line
From a dividend perspective, should investors buy or avoid Indian Hume Pipe? Indian Hume Pipe has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Indian Hume Pipe looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Indian Hume Pipe for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Indian Hume Pipe (including 1 which is a bit concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.