- Aerospace & Defense
Hindustan Aeronautics Limited (NSE:HAL) Passed Our Checks, And It's About To Pay A ₹20.00 Dividend
Readers hoping to buy Hindustan Aeronautics Limited (NSE:HAL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Hindustan Aeronautics investors that purchase the stock on or after the 20th of March will not receive the dividend, which will be paid on the 9th of April.
The company's upcoming dividend is ₹20.00 a share, following on from the last 12 months, when the company distributed a total of ₹56.00 per share to shareholders. Based on the last year's worth of payments, Hindustan Aeronautics has a trailing yield of 2.0% on the current stock price of ₹2783.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Hindustan Aeronautics
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Hindustan Aeronautics has a low and conservative payout ratio of just 5.5% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Hindustan Aeronautics paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Hindustan Aeronautics has grown its earnings rapidly, up 20% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hindustan Aeronautics has delivered 47% dividend growth per year on average over the past five years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Hindustan Aeronautics for the upcoming dividend? Hindustan Aeronautics has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Hindustan Aeronautics is facing. For example - Hindustan Aeronautics has 1 warning sign we think you should be aware of.
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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Find out whether Hindustan Aeronautics is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Hindustan Aeronautics Limited engages in the design, development, manufacture, repair, overhaul, upgrade, and servicing of aircraft, helicopters, aero-engines, avionics, accessories, and aerospace structures in India and internationally.
Flawless balance sheet with outstanding track record and pays a dividend.