HFCL (NSE:HFCL) Is Due To Pay A Dividend Of ₹0.20

HFCL Limited (NSE:HFCL) has announced that it will pay a dividend of ₹0.20 per share on the 30th of October. The dividend yield is 0.1% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for HFCL

HFCL's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, HFCL was earning enough to cover the dividend, but free cash flows weren't positive. 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.

Looking forward, earnings per share could rise by 2.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 8.7% by next year, which we think can be pretty sustainable going forward.

HFCL's Dividend Has Lacked Consistency

Looking back, HFCL's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the dividend has gone from ₹0.06 total annually to ₹0.20. This means that it has been growing its distributions at 22% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

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. However, HFCL has only grown its earnings per share at 2.6% per annum over the past five years. While growth may be thin on the ground, HFCL could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On HFCL's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think HFCL is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in HFCL stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.