Laxmi Organic Industries' (NSE:LXCHEM) Dividend Is Being Reduced To ₹0.50

Laxmi Organic Industries Limited (NSE:LXCHEM) is reducing its dividend to ₹0.50 on the 2nd of Septemberwhich is 29% less than last year's comparable payment of ₹0.70. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Laxmi Organic Industries

Laxmi Organic Industries' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Laxmi Organic Industries was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 191.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 2.6% by next year, which is in a pretty sustainable range.

Laxmi Organic Industries Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2021, the dividend has gone from ₹0.50 total annually to ₹0.70. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Laxmi Organic Industries has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

We Could See Laxmi Organic Industries' Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Laxmi Organic Industries has impressed us by growing EPS at 9.2% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Laxmi Organic Industries has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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.