Hindustan Unilever's (NSE:HINDUNILVR) Upcoming Dividend Will Be Larger Than Last Year's

Hindustan Unilever Limited's (NSE:HINDUNILVR) dividend will be increasing to ₹19.00 on 23rd of July. 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

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Hindustan Unilever's was paying out quite a large proportion of earnings and 94% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Over the next year, EPS is forecast to expand by 8.6%. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 94%, which is on the higher side, but certainly still feasible.

Hindustan Unilever Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was ₹6.50, compared to the most recent full-year payment of ₹34.00. This means that it has been growing its distributions at 18% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Hindustan Unilever Might Find It Hard To Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Hindustan Unilever has impressed us by growing EPS at 12% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Hindustan Unilever's Dividend

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. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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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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.