H.G. Infra Engineering's (NSE:HGINFRA) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of H.G. Infra Engineering Limited (NSE:HGINFRA) has announced that it will be increasing its dividend by 33% on the 18th of September to ₹2.00, up from last year's comparable payment of ₹1.50. This takes the annual payment to 0.1% of the current stock price, which unfortunately is below what the industry is paying.

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H.G. Infra Engineering's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. H.G. Infra Engineering is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 57.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 2.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for H.G. Infra Engineering

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

It's comforting to see that H.G. Infra Engineering has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2018 to the most recent total annual payment of ₹1.50. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that H.G. Infra Engineering has grown earnings per share at 25% per year over the past five years. 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.

Our Thoughts On H.G. Infra Engineering's Dividend

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. While H.G. Infra Engineering is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for H.G. Infra Engineering that investors should know about before committing capital to this stock. Is H.G. Infra Engineering not quite the opportunity you were looking for? Why not check out our selection of top 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.