Hindalco Industries' (NSE:HINDALCO) Dividend Will Be Reduced To ₹3.00

Hindalco Industries Limited's (NSE:HINDALCO) dividend is being reduced from last year's payment covering the same period to ₹3.00 on the 21st of September. This payment takes the dividend yield to 0.7%, which only provides a modest boost to overall returns.

See our latest analysis for Hindalco Industries

Hindalco Industries' 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. Before making this announcement, Hindalco Industries was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 3.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 7.8%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from ₹1.55 total annually to ₹3.00. This implies that the company grew its distributions at a yearly rate of about 6.8% 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.

The Dividend Looks Likely To Grow

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. Hindalco Industries has impressed us by growing EPS at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Hindalco Industries Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Hindalco Industries has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Hindalco Industries that investors should know about before committing capital to this stock. Is Hindalco Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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