Hinduja Global Solutions' (NSE:HGS) Dividend Will Be Reduced To ₹2.50

Hinduja Global Solutions Limited (NSE:HGS) is reducing its dividend from last year's comparable payment to ₹2.50 on the 20th of October. Based on this payment, the dividend yield will be 1.5%, which is lower than the average for the industry.

See our latest analysis for Hinduja Global Solutions

Hinduja Global Solutions' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Hinduja Global Solutions was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 5.9% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

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. The annual payment during the last 10 years was ₹10.00 in 2013, and the most recent fiscal year payment was ₹15.00. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Hinduja Global Solutions' Dividend Growing

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. It's encouraging to see that Hinduja Global Solutions has been growing its earnings per share at 5.9% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Hinduja Global Solutions' prospects of growing its dividend payments in the future.

We should note that Hinduja Global Solutions has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Hinduja Global Solutions' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 3 warning signs for Hinduja Global Solutions that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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