HFCL (NSE:HFCL) Will Pay A Larger Dividend Than Last Year At ₹0.18

HFCL Limited (NSE:HFCL) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of October to ₹0.18. This takes the annual payment to 0.2% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for HFCL

HFCL's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, HFCL's dividend was only 8.7% of earnings, however it was paying out 109% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 15.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 9.5% by next year, which we think can be pretty sustainable going forward.

HFCL's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 4 years was ₹0.06 in 2018, and the most recent fiscal year payment was ₹0.18. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. HFCL has seen EPS rising for the last five years, at 15% per annum. HFCL definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On HFCL's Dividend

In summary, while it's always good to see the dividend being raised, we don't think HFCL's payments are rock solid. While the low payout ratio is 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for HFCL that investors should take into consideration. Is HFCL 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.