HDFC Asset Management Company Limited (NSE:HDFCAMC) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HDFC Asset Management Company Limited (NSE:HDFCAMC) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Therefore, if you purchase HDFC Asset Management's shares on or after the 18th of June, you won't be eligible to receive the dividend, when it is paid on the 7th of July.

The company's next dividend payment will be ₹70.00 per share, on the back of last year when the company paid a total of ₹70.00 to shareholders. Based on the last year's worth of payments, HDFC Asset Management stock has a trailing yield of around 1.7% on the current share price of ₹4004.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for HDFC Asset Management

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. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, HDFC Asset Management's earnings per share have been growing at 16% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, HDFC Asset Management has increased its dividend at approximately 24% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Has HDFC Asset Management got what it takes to maintain its dividend payments? Earnings per share are growing nicely, and HDFC Asset Management is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Overall, HDFC Asset Management looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

In light of that, while HDFC Asset Management has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for HDFC Asset Management that you should be aware of before investing in their 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.