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Should Income Investors Look At Hindustan Zinc Limited (NSE:HINDZINC) Before Its Ex-Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hindustan Zinc Limited (NSE:HINDZINC) is about to go ex-dividend in just three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Hindustan Zinc's shares before the 28th of August in order to receive the dividend, which the company will pay on the 19th of September.
The company's next dividend payment will be ₹19.00 per share. Last year, in total, the company distributed ₹16.00 to shareholders. Looking at the last 12 months of distributions, Hindustan Zinc has a trailing yield of approximately 3.1% on its current stock price of ₹513.80. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Hindustan Zinc
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Hindustan Zinc generated enough free cash flow to afford its dividend. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Hindustan Zinc's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A high payout ratio of 83% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Hindustan Zinc could be signalling that its future growth prospects are thin.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Hindustan Zinc has lifted its dividend by approximately 18% a year on average.
To Sum It Up
Should investors buy Hindustan Zinc for the upcoming dividend? Earnings per share have barely grown, and although Hindustan Zinc paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. In summary, it's hard to get excited about Hindustan Zinc from a dividend perspective.
If you're not too concerned about Hindustan Zinc's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 1 warning sign with Hindustan Zinc and understanding them should be part of your investment process.
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.
Valuation is complex, but we're here to simplify it.
Discover if Hindustan Zinc might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About NSEI:HINDZINC
Hindustan Zinc
Explores for, extracts, and processes minerals in India, rest of Asia, and internationally.
Excellent balance sheet established dividend payer.