HDFC Life Insurance's (NSE:HDFCLIFE) Shareholders Will Receive A Bigger Dividend Than Last Year

HDFC Life Insurance Company Limited's (NSE:HDFCLIFE) dividend will be increasing from last year's payment of the same period to ₹2.00 on 14th of August. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

See our latest analysis for HDFC Life Insurance

HDFC Life Insurance's Payment Has Solid Earnings Coverage

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, prior to this announcement, HDFC Life Insurance's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 62.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

HDFC Life Insurance's Dividend Has Lacked Consistency

Looking back, HDFC Life Insurance's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was ₹1.36, compared to the most recent full-year payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.9% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, HDFC Life Insurance could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On HDFC Life Insurance's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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. 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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