Hero MotoCorp (NSE:HEROMOTOCO) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Hero MotoCorp Limited (NSE:HEROMOTOCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Hero MotoCorp's shares before the 24th of July in order to receive the dividend, which the company will pay on the 4th of September.
The company's next dividend payment will be ₹75.00 per share, on the back of last year when the company paid a total of ₹185 to shareholders. Calculating the last year's worth of payments shows that Hero MotoCorp has a trailing yield of 3.8% on the current share price of ₹4909.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Hero MotoCorp paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Hero MotoCorp generated enough free cash flow to afford its dividend. Fortunately, it paid out only 49% of its free cash flow in the past year.
It's positive to see that Hero MotoCorp's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for Hero MotoCorp
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Hero MotoCorp's earnings per share have been growing at 14% a year for the past five years. Hero MotoCorp is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hero MotoCorp has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Hero MotoCorp worth buying for its dividend? We like Hero MotoCorp's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
So while Hero MotoCorp looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Hero MotoCorp and you should be aware of this before buying any shares.
If you're in the market for strong dividend payers, we recommend checking 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.