Hindustan Unilever (NSE:HINDUNILVR) Is Increasing Its Dividend To ₹19.00

The board of Hindustan Unilever Limited (NSE:HINDUNILVR) has announced that it will be increasing its dividend on the 23rd of July to ₹19.00. This makes the dividend yield about the same as the industry average at 1.5%.

See our latest analysis for Hindustan Unilever

Hindustan Unilever's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Hindustan Unilever's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 102% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share is forecast to rise by 9.4% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 92% which is a bit high but can definitely be sustainable.

Hindustan Unilever Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was ₹6.50, compared to the most recent full-year payment of ₹34.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Hindustan Unilever has seen EPS rising for the last five years, at 13% per annum. 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 Hindustan Unilever will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Hindustan Unilever 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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