Indian Hume Pipe's (NSE:INDIANHUME) Dividend Will Be Reduced To ₹1.00

The Indian Hume Pipe Company Limited (NSE:INDIANHUME) has announced that on 2nd of September, it will be paying a dividend of₹1.00, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.4%, which is lower than 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 74% 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 Dividend Is Well Covered By Earnings

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 its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 82.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 5.3% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The last annual payment of ₹1.00 was flat on the annual payment from10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Indian Hume Pipe 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. Over the past five years, it looks as though Indian Hume Pipe's EPS has declined at around 5.0% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Indian Hume Pipe is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 6 warning signs for Indian Hume Pipe you should be aware of, and 2 of them make us uncomfortable. 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.