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 ₹70.00 on the 7th of July, an increased payment from last year's comparable dividend. This makes the dividend yield 1.7%, which is above the industry average.

View our latest analysis for HDFC Asset Management

HDFC Asset Management's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, HDFC Asset Management was paying out 77% 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.

The next year is set to see EPS grow by 39.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

HDFC Asset Management Doesn't Have A Long Payment History

It is great to see that HDFC Asset Management has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2019, the annual payment back then was ₹24.00, compared to the most recent full-year payment of ₹70.00. This means that it has been growing its distributions at 24% 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.

HDFC Asset Management Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that HDFC Asset Management has grown earnings per share at 16% per 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.

Our Thoughts On HDFC Asset Management's Dividend

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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for HDFC Asset Management that investors should take into consideration. 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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