Hindustan Unilever (NSE:HINDUNILVR) Has Announced That It Will Be Increasing Its Dividend To ₹19.00

Hindustan Unilever Limited (NSE:HINDUNILVR) has announced that it will be increasing its dividend on the 23rd of July to ₹19.00. This takes the annual payment to 1.5% of the current stock price, which is about average for the industry.

See our latest analysis for Hindustan Unilever

Hindustan Unilever'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, Hindustan Unilever was paying out quite a large proportion of both earnings and cash flow, with the dividend being 102% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 8.9%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 92%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Hindustan Unilever Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from ₹6.50 in 2012 to the most recent annual payment of ₹34.00. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Hindustan Unilever's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Hindustan Unilever has grown earnings per share at 13% 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hindustan Unilever's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Hindustan Unilever that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.