LIC Housing Finance (NSE:LICHSGFIN) Is Paying Out A Larger Dividend Than Last Year

LIC Housing Finance Limited (NSE:LICHSGFIN) will increase its dividend on the 27th of October to ₹8.50. This will take the annual payment from 2.1% to 2.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for LIC Housing Finance

LIC Housing Finance's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. LIC Housing Finance is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 38.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which is in the range that makes us comfortable with the sustainability of the dividend.

LIC Housing Finance Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was ₹3.50, compared to the most recent full-year payment of ₹8.50. This means that it has been growing its distributions at 9.3% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.4% per year. While growth may be thin on the ground, LIC Housing Finance could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, we always like to see the dividend being raised, but we don't think LIC Housing Finance will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for LIC Housing Finance that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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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