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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. HeidelbergCement India Limited (NSE:HEIDELBERG) has begun paying dividends recently. It now yields 1.7%. Let’s dig deeper into whether HeidelbergCement India should have a place in your portfolio.
Check out our latest analysis for HeidelbergCement India
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is it the top 25% annual dividend yield payer?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share risen in the past couple of years?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How does HeidelbergCement India fare?
HeidelbergCement India has a trailing twelve-month payout ratio of 31%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 25%, leading to a dividend yield of 2.0%. However, EPS should increase to ₹10.09, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view HeidelbergCement India as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether HEIDELBERG one as a stable dividend player.
Compared to its peers, HeidelbergCement India has a yield of 1.7%, which is high for Basic Materials stocks but still below the market’s top dividend payers.
Next Steps:
Taking all the above into account, HeidelbergCement India is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should look at: