Fairchem Organics Limited (NSE:FAIRCHEMOR) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fairchem Organics Limited (NSE:FAIRCHEMOR) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Fairchem Organics' shares before the 29th of July in order to be eligible for the dividend, which will be paid on the 4th of September.

The company's next dividend payment will be ₹7.50 per share, and in the last 12 months, the company paid a total of ₹7.50 per share. Looking at the last 12 months of distributions, Fairchem Organics has a trailing yield of approximately 0.5% on its current stock price of ₹1383.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Fairchem Organics has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Fairchem Organics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fairchem Organics has a low and conservative payout ratio of just 24% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Fairchem Organics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Fairchem Organics, with earnings per share up 3.1% on average over the last five years. Fairchem Organics is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last three years, Fairchem Organics has lifted its dividend by approximately 29% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Fairchem Organics worth buying for its dividend? Earnings per share growth has been growing somewhat, and Fairchem Organics is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Fairchem Organics is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Fairchem Organics, and we would prioritise taking a closer look at it.

While it's tempting to invest in Fairchem Organics for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Fairchem Organics (1 makes us a bit uncomfortable) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com