Dhampur Bio Organics (NSE:DBOL) Will Pay A Smaller Dividend Than Last Year

Dhampur Bio Organics Limited (NSE:DBOL) is reducing its dividend from last year's comparable payment to ₹2.50 on the 4th of August. This means the annual payment is 1.8% of the current stock price, which is above the average for the industry.

View our latest analysis for Dhampur Bio Organics

Dhampur Bio Organics' Payment Has Solid Earnings Coverage

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. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the company can't turn things around, EPS could fall by 58.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 85%, which is definitely on the higher side.

Dhampur Bio Organics Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Dhampur Bio Organics has seen EPS fall by 58% over the last 12 months. Such a large drop can indicate that the business has run into some trouble and might end up in the dividend having to be reduced. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

The Dividend Could Prove To Be Unreliable

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Dhampur Bio Organics (2 make us uncomfortable!) that you should be aware of before investing. 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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