Indian Hume Pipe's (NSE:INDIANHUME) Dividend Will Be Increased To ₹5.80

The board of The Indian Hume Pipe Company Limited (NSE:INDIANHUME) has announced that it will be paying its dividend of ₹5.80 on the 31st of August, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 0.4%.

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 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

We've discovered 4 warning signs about Indian Hume Pipe. View them for free.

Estimates Indicate Indian Hume Pipe's Could Struggle to Maintain Dividend Payments In The Future

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, Indian Hume Pipe's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 99.0% over the next year. If the dividend continues along the path it has been on recently, the company could be paying out more than double what it is earning, which is definitely a bit high to be sustainable going forward.

See our latest analysis for Indian Hume Pipe

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹1.20 in 2015 to the most recent total annual payment of ₹1.80. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Indian Hume Pipe has been growing its earnings per share at 48% a 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.

Indian Hume Pipe Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Indian Hume Pipe is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Indian Hume Pipe (of which 2 are potentially serious!) you should know about. Is Indian Hume Pipe 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.