Hindustan Petroleum's (NSE:HINDPETRO) Dividend Will Be Increased To ₹22.75

The board of Hindustan Petroleum Corporation Limited (NSE:HINDPETRO) has announced that it will be increasing its dividend on the 1st of January to ₹22.75. This takes the dividend yield from 7.6% to 7.6%, which shareholders will be pleased with.

See our latest analysis for Hindustan Petroleum

Hindustan Petroleum's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Hindustan Petroleum was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 37.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 58%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from ₹3.11 in 2011 to the most recent annual payment of ₹22.75. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Hindustan Petroleum has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hindustan Petroleum has impressed us by growing EPS at 18% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Hindustan Petroleum's prospects of growing its dividend payments in the future.

Hindustan Petroleum Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Hindustan Petroleum is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. To that end, Hindustan Petroleum has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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This article by Simply Wall St is general in nature. 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.
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