Hindustan Unilever (NSE:HINDUNILVR) Is Increasing Its Dividend To ₹18.00

Hindustan Unilever Limited (NSE:HINDUNILVR) has announced that it will be increasing its periodic dividend on the 18th of November to ₹18.00, which will be 5.9% higher than last year's comparable payment amount of ₹17.00. The payment will take the dividend yield to 1.6%, which is in line with the average for the industry.

See our latest analysis for Hindustan Unilever

Hindustan Unilever's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Hindustan Unilever was paying out 91% of earnings, but a comparatively small 65% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 29.4% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Hindustan Unilever Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ₹9.00 in 2013, and the most recent fiscal year payment was ₹39.00. This means that it has been growing its distributions at 16% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Growth Potential

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 9.4% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend is easily covered by cash flows and has a good track record, but we think the payout ratio might be a bit high. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Hindustan Unilever that you should be aware of before investing. 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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