HDFC Life Insurance's (NSE:HDFCLIFE) Upcoming Dividend Will Be Larger Than Last Year's

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. The payment will take the dividend yield to 0.4%, which is in line with the average for the industry.

Check out our latest analysis for HDFC Life Insurance

HDFC Life Insurance's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, HDFC Life Insurance's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 62.6% over the next year. 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

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was ₹1.36 in 2018, and the most recent fiscal year payment was ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. HDFC Life Insurance might have put its house in order since then, but we remain cautious.

HDFC Life Insurance May Find It Hard To Grow The 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. 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 EPS growth is quite low, HDFC Life Insurance has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On HDFC Life Insurance's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.