Hinduja Global Solutions' (NSE:HGS) Dividend Will Be Increased To ₹7.00

Hinduja Global Solutions Limited's (NSE:HGS) dividend will be increasing from last year's payment of the same period to ₹7.00 on 27th of October. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Hinduja Global Solutions

Hinduja Global Solutions' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Hinduja Global Solutions' dividend was only 25% of earnings, however it was paying out 419% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, could fall by 19.8% if the company can't turn things around from the last few years. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 76%, meaning that most of the company's earnings is being paid out to shareholders.

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 2014, the annual payment back then was ₹5.00, compared to the most recent full-year payment of ₹7.00. This means that it has been growing its distributions at 3.4% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Hinduja Global Solutions' EPS has declined at around 20% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Hinduja Global Solutions' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Hinduja Global Solutions' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hinduja Global Solutions has 3 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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