Dhampur Bio Organics' (NSE:DBOL) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of Dhampur Bio Organics Limited (NSE:DBOL) has announced it will be reducing its dividend by 50% from last year's payment of ₹2.50 on the 10th of August, with shareholders receiving ₹1.25. The dividend yield of 3.5% is still a nice boost to shareholder returns, despite the cut.

We've discovered 5 warning signs about Dhampur Bio Organics. View them for free.

Dhampur Bio Organics' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Dhampur Bio Organics is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, EPS could fall by 47.6% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 54%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Check out 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. Since 2023, the annual payment back then was ₹3.50, compared to the most recent full-year payment of ₹2.50. The dividend has fallen 29% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been sinking by 48% over the last three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in 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 probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Dhampur Bio Organics (of which 2 can't be ignored!) 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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