Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) is reducing its dividend to ₹80.00 on the 14th of December. However, the dividend yield of 2.2% is still a decent boost to shareholder returns.
Procter & Gamble Hygiene and Health Care Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. 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. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 184% over the next year.
While the company has been paying a dividend for a long time, it has cut the dividend at least once 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. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Procter & Gamble Hygiene and Health Care Could Grow Its Dividend
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 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.
Our Thoughts On Procter & Gamble Hygiene and Health Care's Dividend
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Procter & Gamble Hygiene and Health Care 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 performing dividend stock.
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