Hindustan Aeronautics Limited (NSE:HAL) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Hindustan Aeronautics Limited (NSE:HAL) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Hindustan Aeronautics investors that purchase the stock on or after the 21st of August will not receive the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be ₹13.00 per share, and in the last 12 months, the company paid a total of ₹35.00 per share. Last year's total dividend payments show that Hindustan Aeronautics has a trailing yield of 0.7% on the current share price of ₹4769.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Hindustan Aeronautics has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Hindustan Aeronautics

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Hindustan Aeronautics paying out a modest 31% of its earnings. 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. Fortunately, it paid out only 31% of its free cash flow in the past year.

It's positive to see that Hindustan Aeronautics'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.

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Hindustan Aeronautics's earnings have been skyrocketing, up 29% per annum for the past five years. Hindustan Aeronautics is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Hindustan Aeronautics has increased its dividend at approximately 43% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

From a dividend perspective, should investors buy or avoid Hindustan Aeronautics? It's great that Hindustan Aeronautics is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Hindustan Aeronautics looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Hindustan Aeronautics is facing. Our analysis shows 1 warning sign for Hindustan Aeronautics and you should be aware of it before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.