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

HDFC Asset Management Company Limited (NSE:HDFCAMC) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of July to ₹48.00. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

View our latest analysis for HDFC Asset Management

HDFC Asset Management's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, HDFC Asset Management's was paying out quite a large proportion of earnings and 90% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS is forecast to expand by 38.3%. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

HDFC Asset Management Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of ₹24.00 in 2019 to the most recent total annual payment of ₹48.00. This means that it has been growing its distributions at 19% per annum over that time. 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. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, we always like to see the dividend being raised, but we don't think HDFC Asset Management will make a great income stock. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for HDFC Asset Management that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.