Here's What We Like About Indian Hume Pipe's (NSE:INDIANHUME) Upcoming Dividend

The Indian Hume Pipe Company Limited (NSE:INDIANHUME) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Indian Hume Pipe's shares on or after the 18th of July will not receive the dividend, which will be paid on the 5th of August.

The company's next dividend payment will be ₹5.80 per share, on the back of last year when the company paid a total of ₹1.80 to shareholders. Calculating the last year's worth of payments shows that Indian Hume Pipe has a trailing yield of 0.4% on the current share price of ₹437.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Indian Hume Pipe has a low and conservative payout ratio of just 1.7% of its income after tax. A useful secondary check can be to evaluate whether Indian Hume Pipe generated enough free cash flow to afford its dividend. Luckily it paid out just 11% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Indian Hume Pipe

Click here to see how much of its profit Indian Hume Pipe paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Indian Hume Pipe has grown its earnings rapidly, up 48% a year for the past five years. Indian Hume Pipe looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Indian Hume Pipe has increased its dividend at approximately 1.8% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Should investors buy Indian Hume Pipe for the upcoming dividend? It's great that Indian Hume Pipe is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Indian Hume Pipe looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Indian Hume Pipe looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Indian Hume Pipe (2 are concerning!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking 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.