Honda India Power Products' (NSE:HONDAPOWER) Shareholders Will Receive A Smaller Dividend Than Last Year

By
Simply Wall St
Published
July 24, 2021
NSEI:HONDAPOWER
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Honda India Power Products Limited (NSE:HONDAPOWER) is reducing its dividend to ₹10.00 on the 19th of October. Despite the cut, the dividend yield of 0.8% will still be comparable to other companies in the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Honda India Power Products' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Honda India Power Products

Honda India Power Products' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, Honda India Power Products' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 0.06% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 23%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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NSEI:HONDAPOWER Historic Dividend July 25th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from ₹4.00 to ₹10.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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

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. 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

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. This company is not in the top tier of income providing stocks.

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 identified 4 warning signs for Honda India Power Products (1 is significant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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This article by Simply Wall St is general in nature. 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.
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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.