H.G. Infra Engineering (NSE:HGINFRA) Is Paying Out A Larger Dividend Than Last Year

H.G. Infra Engineering Limited (NSE:HGINFRA) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of September to ₹2.00. Even though the dividend went up, the yield is still quite low at only 0.2%.

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H.G. Infra Engineering's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, H.G. Infra Engineering was earning enough to cover the dividend, but free cash flows weren't positive. 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 61.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 1.9% by next year, which is in a pretty sustainable range.

Check out our latest analysis for H.G. Infra Engineering

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

H.G. Infra Engineering has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was ₹0.50 in 2018, and the most recent fiscal year payment was ₹2.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. H.G. Infra Engineering has seen EPS rising for the last five years, at 25% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, we always like to see the dividend being raised, but we don't think H.G. Infra Engineering will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think H.G. Infra Engineering is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. 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. Looking for more high-yielding dividend ideas? Try our collection of 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.