Dhampur Bio Organics (NSE:DBOL) Has Announced That Its Dividend Will Be Reduced To ₹1.25

Dhampur Bio Organics Limited's (NSE:DBOL) dividend is being reduced from last year's payment covering the same period to ₹1.25 on the 10th of August. The yield is still above the industry average at 1.5%.

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 Dhampur Bio Organics' stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Dhampur Bio Organics' Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Dhampur Bio Organics' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 47.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 108%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for Dhampur Bio Organics

Dhampur Bio Organics' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 2 years was ₹3.50 in 2023, and the most recent fiscal year payment was ₹1.25. This works out to a decline of approximately 64% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 48% over the last three years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Dhampur Bio Organics' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Dhampur Bio Organics has 5 warning signs (and 2 which are concerning) we think you should know about. Is Dhampur Bio Organics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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