Here's What We Like About Hindustan Petroleum's (NSE:HINDPETRO) Upcoming Dividend

It looks like Hindustan Petroleum Corporation Limited (NSE:HINDPETRO) is about to go ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Hindustan Petroleum's shares on or after the 9th of August will not receive the dividend, which will be paid on the 22nd of September.

The company's upcoming dividend is ₹11.00 a share, following on from the last 12 months, when the company distributed a total of ₹22.00 per share to shareholders. Last year's total dividend payments show that Hindustan Petroleum has a trailing yield of 5.7% on the current share price of ₹388.75. If you buy this business for its dividend, you should have an idea of whether Hindustan Petroleum's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hindustan Petroleum

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hindustan Petroleum paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Hindustan Petroleum generated enough free cash flow to afford its dividend. The good news is it paid out just 15% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Hindustan Petroleum earnings per share are up 9.7% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hindustan Petroleum has delivered an average of 33% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Hindustan Petroleum got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Hindustan Petroleum is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Hindustan Petroleum is being conservative with its dividend payouts and could still perform reasonably over the long run. Hindustan Petroleum looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Hindustan Petroleum looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Hindustan Petroleum you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com