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

Fairchem Organics Limited's (NSE:FAIRCHEMOR) investors are due to receive a payment of ₹7.50 per share on 10th of September. This payment means that the dividend yield will be 0.9%, which is around the industry average.

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Fairchem Organics' Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Fairchem Organics was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 8.7% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 49%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

View our latest analysis for Fairchem Organics

Fairchem Organics' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 4 years was ₹3.50 in 2021, and the most recent fiscal year payment was ₹7.50. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Fairchem Organics' earnings per share has fallen at approximately 8.7% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Fairchem Organics you should be aware of, and 1 of them is significant. 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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