HP Adhesives (NSE:HPAL) Has Announced That It Will Be Increasing Its Dividend To ₹0.40

HP Adhesives Limited (NSE:HPAL) will increase its dividend from last year's comparable payment on the 30th of October to ₹0.40. The payment will take the dividend yield to 0.9%, which is in line with the average for the industry.

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HP Adhesives' Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. HP Adhesives is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 18.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

Check out our latest analysis for HP Adhesives

HP Adhesives Is Still Building Its Track Record

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. HP Adhesives has seen EPS rising for the last five years, at 18% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On HP Adhesives' Dividend

In summary, while it's always good to see the dividend being raised, we don't think HP Adhesives' payments are rock solid. While HP Adhesives is earning enough to cover the payments, the cash flows are lacking. We don't think HP Adhesives is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for HP Adhesives that you should be aware of before investing. Is HP Adhesives 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.