The board of HICL Infrastructure PLC (LON:HICL) has announced that it will pay a dividend of £0.0206 per share on the 31st of March. The dividend yield will be 7.5% based on this payment which is still above the industry average.
Check out our latest analysis for HICL Infrastructure
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 85% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
EPS is set to fall by 11.6% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 183%, which could put the dividend under pressure if earnings don’t start to improve.
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.071 in 2015, and the most recent fiscal year payment was £0.0825. This works out to be a compound annual growth rate (CAGR) of approximately 1.5% a year over that time. Although we can’t deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The company’s investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. HICL Infrastructure’s EPS has fallen by approximately 12% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don’t think HICL Infrastructure is a great stock to add to your portfolio if income is your focus.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We’ve spotted 2 warning signs for HICL Infrastructure (of which 1 is significant!) you should know about. Is HICL Infrastructure 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.