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

Laxmi Organic Industries Limited's (NSE:LXCHEM) dividend is being reduced from last year's payment covering the same period to ₹0.50 on the 2nd of September. This means that the annual payment is 0.2% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Laxmi Organic Industries

Laxmi Organic Industries' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Laxmi Organic Industries was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 191.4%. If the dividend continues on this path, the payout ratio could be 3.9% by next year, which we think can be pretty sustainable going forward.

Laxmi Organic Industries' 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. There hasn't been much of a change in the dividend over the last 2 years. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Laxmi Organic Industries has grown earnings per share at 9.2% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Laxmi Organic Industries' prospects of growing its dividend payments in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Laxmi Organic Industries is earning enough to cover the payments, the cash flows are lacking. We don't think Laxmi Organic Industries is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 shouldn't be ignored) 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.