Hero MotoCorp (NSE:HEROMOTOCO) Has Announced A Dividend Of ₹40.00

Hero MotoCorp Limited (NSE:HEROMOTOCO) has announced that it will pay a dividend of ₹40.00 per share on the 11th of September. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Hero MotoCorp

Hero MotoCorp's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Hero MotoCorp was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 55.1%. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹60.00 in 2014 to the most recent total annual payment of ₹115.00. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Hero MotoCorp May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Hero MotoCorp's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Hero MotoCorp's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Hero MotoCorp that investors should take into consideration. Is Hero MotoCorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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