Orient Cement (NSE:ORIENTCEM) Is Paying Out A Larger Dividend Than Last Year

The board of Orient Cement Limited (NSE:ORIENTCEM) has announced that the dividend on 2nd of March will be increased to ₹0.75, which will be 50% higher than last year. This takes the dividend yield from 1.2% to 1.3%, which shareholders will be pleased with.

View our latest analysis for Orient Cement

Orient Cement's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Orient Cement's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 58.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

Orient Cement's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the dividend has gone from ₹1.50 to ₹2.00. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. 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 Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Orient Cement has impressed us by growing EPS at 58% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Orient Cement Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Orient Cement is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Orient Cement that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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