HDFC Asset Management (NSE:HDFCAMC) Is Paying Out A Larger Dividend Than Last Year

The board of HDFC Asset Management Company Limited (NSE:HDFCAMC) has announced that it will be paying its dividend of ₹48.00 on the 26th of July, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

Check out our latest analysis for HDFC Asset Management

HDFC Asset Management's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, HDFC Asset Management was paying out 72% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Over the next year, EPS is forecast to expand by 38.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 63% by next year, which is in a pretty sustainable range.

HDFC Asset Management Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the dividend has gone from ₹24.00 total annually to ₹48.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. HDFC Asset Management has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that HDFC Asset Management has been growing its earnings per share at 14% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think HDFC Asset Management's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think HDFC Asset Management is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for HDFC Asset Management that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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