HDFC Life Insurance (NSE:HDFCLIFE) Has Announced That It Will Be Increasing Its Dividend To ₹2.10

HDFC Life Insurance Company Limited's (NSE:HDFCLIFE) dividend will be increasing from last year's payment of the same period to ₹2.10 on 15th of August. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

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HDFC Life Insurance's Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, HDFC Life Insurance's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 60.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 17% by next year, which is in a pretty sustainable range.

Check out our latest analysis for HDFC Life Insurance

HDFC Life Insurance's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹1.36 in 2017 to the most recent total annual payment of ₹2.10. This implies that the company grew its distributions at a yearly rate of about 5.6% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See HDFC Life Insurance's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. HDFC Life Insurance has seen EPS rising for the last five years, at 5.5% per annum. HDFC Life Insurance definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for HDFC Life Insurance that investors need to be conscious of moving forward. Is HDFC Life Insurance not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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