Procter & Gamble Hygiene and Health Care (NSE:PGHH) Will Pay A Smaller Dividend Than Last Year

Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) has announced that on 26th of December, it will be paying a dividend of₹95.00, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 1.2%.

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

Procter & Gamble Hygiene and Health Care's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Procter & Gamble Hygiene and Health Care was paying out quite a large proportion of both earnings and cash flow, with the dividend being 149% 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 52.7%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 94% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹27.50 in 2014, and the most recent fiscal year payment was ₹195.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Procter & Gamble Hygiene and Health Care has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Procter & Gamble Hygiene and Health Care's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Procter & Gamble Hygiene and Health Care has impressed us by growing EPS at 10% 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.

Procter & Gamble Hygiene and Health Care's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. Strong earnings growth means Procter & Gamble Hygiene and Health Care has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Procter & Gamble Hygiene and Health Care is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Procter & Gamble Hygiene and Health Care 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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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.