Fairchem Organics' (NSE:FAIRCHEMOR) Dividend Will Be ₹7.50

The board of Fairchem Organics Limited (NSE:FAIRCHEMOR) has announced that it will pay a dividend on the 4th of September, with investors receiving ₹7.50 per share. This payment means the dividend yield will be 0.5%, which is below the average for the industry.

Check out our latest analysis for Fairchem Organics

Fairchem Organics' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Fairchem Organics' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 3.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Fairchem Organics' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of ₹3.50 in 2021 to the most recent total annual payment of ₹7.50. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. Fairchem Organics has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Fairchem Organics May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Fairchem Organics has only grown its earnings per share at 3.1% per annum over the past five years. If Fairchem Organics is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Fairchem Organics has 2 warning signs (and 1 which is significant) we think you should know about. Is Fairchem Organics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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