HeidelbergCement India (NSE:HEIDELBERG) Has Announced That It Will Be Increasing Its Dividend To ₹8.00

HeidelbergCement India Limited (NSE:HEIDELBERG) will increase its dividend on the 25th of October to ₹8.00, which is 14% higher than last year's payment from the same period of ₹7.00. This will take the annual payment to 3.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for HeidelbergCement India

HeidelbergCement India's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, HeidelbergCement India's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 91.8% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 64% which would be quite comfortable going to take the dividend forward.

HeidelbergCement India's Dividend Has Lacked Consistency

HeidelbergCement India has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ₹2.00 in 2017 to the most recent total annual payment of ₹7.00. This means that it has been growing its distributions at 20% per annum over that time. 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.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, HeidelbergCement India's earnings per share has shrunk at approximately 5.3% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

HeidelbergCement India's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think HeidelbergCement India's payments are rock solid. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 HeidelbergCement India 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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