HDFC Bank (NSE:HDFCBANK) Is Increasing Its Dividend To ₹19.00

HDFC Bank Limited (NSE:HDFCBANK) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of August to ₹19.00. Based on this payment, the dividend yield for the company will be 1.2%, which is fairly typical for the industry.

View our latest analysis for HDFC Bank

HDFC Bank's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, HDFC Bank has a long history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, HDFC Bank's latest earnings report puts its payout ratio at 23%, showing that the company can pay out its dividends comfortably.

Over the next year, EPS is forecast to expand by 16.8%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 24% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹2.15 in 2013, and the most recent fiscal year payment was ₹19.00. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. We are encouraged to see that HDFC Bank has grown earnings per share at 18% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

HDFC Bank Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for HDFC Bank (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated 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.