Honda India Power Products (NSE:HONDAPOWER) Is Paying Out Less In Dividends Than Last Year

Honda India Power Products Limited's (NSE:HONDAPOWER) dividend is being reduced to ₹10.00 on the 19th of October. However, the dividend yield of 0.9% still remains in a typical range for the industry.

See our latest analysis for Honda India Power Products

Honda India Power Products' Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Honda India Power Products' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 0.06% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 23%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was ₹4.00, compared to the most recent full-year payment of ₹10.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Honda India Power Products May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Honda India Power Products' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Honda India Power Products' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Honda India Power Products has 3 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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