Oriental Carbon & Chemicals (NSE:OCCL) Is Paying Out A Larger Dividend Than Last Year

Oriental Carbon & Chemicals Limited's (NSE:OCCL) dividend will be increasing on the 27th of November to ₹7.00, with investors receiving 75% more than last year. This takes the dividend yield from 1.4% to 1.7%, which shareholders will be pleased with.

See our latest analysis for Oriental Carbon & Chemicals

Oriental Carbon & Chemicals' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Oriental Carbon & Chemicals was paying a whopping 240% as a dividend, but this only made up 12% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 9.8% if recent trends continue. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from ₹4.00 in 2011 to the most recent annual payment of ₹14.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Oriental Carbon & Chemicals has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Oriental Carbon & Chemicals' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Oriental Carbon & Chemicals has impressed us by growing EPS at 9.8% per year over the past five years. Oriental Carbon & Chemicals definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Oriental Carbon & Chemicals' payments are rock solid. While Oriental Carbon & Chemicals is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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 1 warning sign for Oriental Carbon & Chemicals that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.