Indian Hume Pipe (NSE:INDIANHUME) Is Due To Pay A Dividend Of ₹2.00

The board of The Indian Hume Pipe Company Limited (NSE:INDIANHUME) has announced that it will pay a dividend on the 25th of September, with investors receiving ₹2.00 per share. This payment means the dividend yield will be 0.9%, which is below the average for 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 Indian Hume Pipe's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Indian Hume Pipe

Indian Hume Pipe's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Indian Hume Pipe's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 7.6% if recent trends continue. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from ₹1.00 in 2011 to the most recent annual payment of ₹2.00. This means that it has been growing its distributions at 7.2% per annum 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.

Indian Hume Pipe Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Indian Hume Pipe has impressed us by growing EPS at 7.6% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Indian Hume Pipe's prospects of growing its dividend payments in the future.

Our Thoughts On Indian Hume Pipe's Dividend

Overall, we think Indian Hume Pipe is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Indian Hume Pipe has 5 warning signs (and 2 which are a bit 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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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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