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Hercules Hoists Limited (NSE:HERCULES) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 1st of August to receive the dividend, which will be paid on the 8th of September.
Hercules Hoists's next dividend payment will be ₹1.50 per share. Last year, in total, the company distributed ₹1.50 to shareholders. Calculating the last year's worth of payments shows that Hercules Hoists has a trailing yield of 1.8% on the current share price of ₹83.65. If you buy this business for its dividend, you should have an idea of whether Hercules Hoists's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Hercules Hoists
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Hercules Hoists paying out a modest 37% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Hercules Hoists'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.
Click here to see how much of its profit Hercules Hoists paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Hercules Hoists's earnings per share have dropped 8.3% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Hercules Hoists has increased its dividend at approximately 4.1% a year on average.
To Sum It Up
Is Hercules Hoists worth buying for its dividend? Hercules Hoists has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.