Hind Rectifiers Limited (NSE:HIRECT) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of August to ₹2.00. Even though the dividend went up, the yield is still quite low at only 0.2%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hind Rectifiers' stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Hind Rectifiers' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
If the trend of the last few years continues, EPS will grow by 14.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 10% by next year, which we think can be pretty sustainable going forward.
Check out our latest analysis for Hind Rectifiers
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹0.20 in 2015 to the most recent total annual payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. 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.
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hind Rectifiers has seen EPS rising for the last five years, at 14% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Hind Rectifiers' prospects of growing its dividend payments in the future.
Overall, a dividend increase is always good, and we think that Hind Rectifiers is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Hind Rectifiers that investors should take into consideration. 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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