Procter & Gamble Hygiene and Health Care (NSE:PGHH) Has Announced That Its Dividend Will Be Reduced To ₹80.00

Procter & Gamble Hygiene and Health Care Limited's (NSE:PGHH) dividend is being reduced to ₹80.00 on the 14th of December. The yield is still above the industry average at 2.3%.

See our latest analysis for Procter & Gamble Hygiene and Health Care

Procter & Gamble Hygiene and Health Care Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Procter & Gamble Hygiene and Health Care was paying out 82% of earnings, but a comparatively small 62% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 9.1% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 184%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from ₹22.50 to ₹160. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Procter & Gamble Hygiene and Health Care has grown earnings per share at 9.1% 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

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Procter & Gamble Hygiene and Health Care that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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.

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