Fairchem Organics (NSE:FAIRCHEMOR) Has Announced A Dividend Of ₹7.50

The board of Fairchem Organics Limited (NSE:FAIRCHEMOR) has announced that it will pay a dividend of ₹7.50 per share on the 4th of September. This payment means the dividend yield will be 0.6%, which is below the average for the industry.

View our latest analysis for Fairchem Organics

Fairchem Organics' Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Fairchem Organics was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow 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

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2021, the dividend has gone from ₹3.50 total annually to ₹7.50. This means that it has been growing its distributions at 29% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.1% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Fairchem Organics could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Fairchem Organics' Dividend

Overall, a consistent dividend is a good thing, and we think that Fairchem Organics has the ability to continue this into the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Fairchem Organics has 2 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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