Here's What You Should Know About Procter & Gamble Hygiene and Health Care Limited's (NSE:PGHH) 1.0% Dividend Yield

Could Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A 1.0% yield is nothing to get excited about, but investors probably think the long payment history suggests Procter & Gamble Hygiene and Health Care has some staying power. Some simple analysis can reduce the risk of holding Procter & Gamble Hygiene and Health Care for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Procter & Gamble Hygiene and Health Care!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 37% of Procter & Gamble Hygiene and Health Care's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Procter & Gamble Hygiene and Health Care paid out 80% of its cash flow last year. This may be sustainable but it does not leave much of a buffer for unexpected circumstances. It's positive to see that Procter & Gamble Hygiene and Health Care'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.

With a strong net cash balance, Procter & Gamble Hygiene and Health Care investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Procter & Gamble Hygiene and Health Care's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Procter & Gamble Hygiene and Health Care has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was ₹22.5 in 2010, compared to ₹96.0 last year. Dividends per share have grown at approximately 16% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Procter & Gamble Hygiene and Health Care has grown its earnings per share at 7.1% per annum over the past five years. Earnings per share have been growing at a credible rate. What's more, the payout ratio is reasonable and provides some protection to the dividend, or even the potential to increase it.

Conclusion

To summarise, shareholders should always check that Procter & Gamble Hygiene and Health Care's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Above all, we're glad to see that Procter & Gamble Hygiene and Health Care pays out a low fraction of its earnings and, while it paid a higher percentage of cashflow, this also was within a normal range. Second, earnings growth has been ordinary, and its history of dividend payments is chequered - having cut its dividend at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Procter & Gamble Hygiene and Health Care out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Procter & Gamble Hygiene and Health Care that investors should know about before committing capital to this stock.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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