Hindustan Unilever (NSE:HINDUNILVR) Will Pay A Larger Dividend Than Last Year At ₹22.00

Hindustan Unilever Limited's (NSE:HINDUNILVR) dividend will be increasing from last year's payment of the same period to ₹22.00 on 26th of July. This makes the dividend yield about the same as the industry average at 1.6%.

View our latest analysis for Hindustan Unilever

Hindustan Unilever's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Hindustan Unilever was paying out quite a large proportion of both earnings and cash flow, with the dividend being 103% 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.

Over the next year, EPS is forecast to expand by 46.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 70% which brings it into quite a comfortable range.

Hindustan Unilever Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was ₹8.00, compared to the most recent full-year payment of ₹39.00. This means that it has been growing its distributions at 17% per annum 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.

Hindustan Unilever Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Hindustan Unilever has grown earnings per share at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Hindustan Unilever's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hindustan Unilever's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Hindustan Unilever is a great stock to add to your portfolio if income is your focus.

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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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