Hindalco Industries' (NSE:HINDALCO) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Hindalco Industries Limited (NSE:HINDALCO) has announced that it will be paying its dividend of ₹5.00 on the 20th of September, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.7%, which is below the industry average.

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Hindalco Industries' Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, Hindalco Industries' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 6.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 7.5% by next year, which is in a pretty sustainable range.

See our latest analysis for Hindalco Industries

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ₹1.00 total annually to ₹5.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Hindalco Industries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Hindalco Industries has seen EPS rising for the last five years, at 34% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Hindalco Industries' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Hindalco Industries that investors need to be conscious of moving forward. 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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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.