Fairchem Organics' (NSE:FAIRCHEMOR) Shareholders Will Receive A Smaller Dividend Than Last Year

Fairchem Organics Limited's (NSE:FAIRCHEMOR) dividend is being reduced from last year's payment covering the same period to ₹7.50 on the 6th of September. This means that the annual payment is 0.6% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Fairchem Organics

Fairchem Organics' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. 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.

If the trend of the last few years continues, EPS will grow by 4.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 works out to be a compound annual growth rate (CAGR) of approximately 46% a year 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.

Fairchem Organics May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Fairchem Organics has only grown its earnings per share at 4.6% per annum over the past five years. While EPS growth is quite low, Fairchem Organics has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Fairchem Organics' Dividend

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. Taking the debate a bit further, we've identified 2 warning signs for Fairchem Organics that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.