Why You Might Be Interested In HEG Limited (NSE:HEG) For Its Upcoming Dividend

HEG Limited (NSE:HEG) is about to trade ex-dividend in the next 2 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase HEG's shares before the 13th of August in order to receive the dividend, which the company will pay on the 19th of September.

The company's upcoming dividend is ₹1.80 a share, following on from the last 12 months, when the company distributed a total of ₹1.80 per share to shareholders. Based on the last year's worth of payments, HEG has a trailing yield of 0.4% on the current stock price of ₹505.80. If you buy this business for its dividend, you should have an idea of whether HEG's dividend is reliable and sustainable. So we need to investigate whether HEG can afford its dividend, and if the dividend could grow.

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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. HEG paid out a comfortable 30% of its profit last year. 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. Over the last year, it paid out more than three-quarters (90%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that HEG'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.

Check out our latest analysis for HEG

Click here to see how much of its profit HEG paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see HEG has grown its earnings rapidly, up 24% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, HEG has lifted its dividend by approximately 12% 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.

The Bottom Line

Is HEG worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. HEG 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 HEG is facing. Our analysis shows 1 warning sign for HEG 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.