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

Fairchem Organics Limited (NSE:FAIRCHEMOR) has announced that it will pay a dividend of ₹7.50 per share on the 10th of September. This payment means that the dividend yield will be 0.8%, which is around the industry average.

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Fairchem Organics' Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Fairchem 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.

Unless the company can turn things around, EPS could fall by 8.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 53%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Fairchem Organics

Fairchem Organics' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from an annual total of ₹3.50 in 2021 to the most recent total annual payment of ₹7.50. This means that it has been growing its distributions at 21% per annum 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.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Fairchem Organics' earnings per share has shrunk at approximately 8.7% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Fairchem Organics' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Fairchem Organics is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Fairchem Organics you should be aware of, and 1 of them is a bit concerning. 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.