Hero MotoCorp (NSE:HEROMOTOCO) Will Pay A Dividend Of ₹35.00

Hero MotoCorp Limited (NSE:HEROMOTOCO) will pay a dividend of ₹35.00 on the 8th of September. The dividend yield will be 3.4% based on this payment which is still above the industry average.

View our latest analysis for Hero MotoCorp

Hero MotoCorp's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Hero MotoCorp's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 99% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 48.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹45.00 total annually to ₹100.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Come By

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. It's not great to see that Hero MotoCorp's earnings per share has fallen at approximately 5.5% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Hero MotoCorp is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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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