Hero MotoCorp Limited (NSE:HEROMOTOCO) Pays A ₹65.00 Dividend In Just Three Days

Readers hoping to buy Hero MotoCorp Limited (NSE:HEROMOTOCO) 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. Thus, you can purchase Hero MotoCorp's shares before the 24th of July in order to receive the dividend, which the company will pay on the 4th of September.

The company's upcoming dividend is ₹65.00 a share, following on from the last 12 months, when the company distributed a total of ₹165 per share to shareholders. Looking at the last 12 months of distributions, Hero MotoCorp has a trailing yield of approximately 3.8% on its current stock price of ₹4396.70. If you buy this business for its dividend, you should have an idea of whether Hero MotoCorp's dividend is reliable and sustainable. As a result, readers should always check whether Hero MotoCorp has been able to grow its dividends, or if the dividend might be cut.

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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. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Hero MotoCorp'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 Hero MotoCorp

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Hero MotoCorp, with earnings per share up 3.7% on average over the last five years. A high payout ratio of 75% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Hero MotoCorp could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Hero MotoCorp has lifted its dividend by approximately 11% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Hero MotoCorp worth buying for its dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into Hero MotoCorp, it's worth knowing the risks this business faces. Case in point: We've spotted 1 warning sign for Hero MotoCorp you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.