Should You Buy HDFC Life Insurance Company Limited (NSE:HDFCLIFE) For Its Upcoming Dividend?

It looks like HDFC Life Insurance Company Limited (NSE:HDFCLIFE) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase HDFC Life Insurance's shares before the 21st of June to receive the dividend, which will be paid on the 14th of August.

The company's next dividend payment will be ₹2.00 per share, on the back of last year when the company paid a total of ₹2.00 to shareholders. Looking at the last 12 months of distributions, HDFC Life Insurance has a trailing yield of approximately 0.3% on its current stock price of ₹598.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for HDFC Life Insurance

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. HDFC Life Insurance paid out a comfortable 27% of its profit last year.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see HDFC Life Insurance earnings per share are up 2.9% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, HDFC Life Insurance has increased its dividend at approximately 5.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid HDFC Life Insurance? HDFC Life Insurance has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. In summary, HDFC Life Insurance appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

In light of that, while HDFC Life Insurance has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for HDFC Life Insurance and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com