H.G. Infra Engineering (NSE:HGINFRA) Is Increasing Its Dividend To ₹2.00

The board of H.G. Infra Engineering Limited (NSE:HGINFRA) has announced that it will be paying its dividend of ₹2.00 on the 18th of September, an increased payment from last year's comparable dividend. This takes the annual payment to 0.2% of the current stock price, which unfortunately is below what the industry is paying.

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H.G. Infra Engineering's Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, H.G. Infra Engineering's earnings easily covered the dividend, but free cash flows were negative. 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.

Over the next year, EPS is forecast to expand by 61.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 1.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for H.G. Infra Engineering

H.G. Infra Engineering's Dividend Has Lacked Consistency

Looking back, H.G. Infra Engineering's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹0.50 in 2018 to the most recent total annual payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. H.G. Infra Engineering has seen EPS rising for the last five years, at 25% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think H.G. Infra Engineering's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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 2 warning signs for H.G. Infra Engineering 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 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.