Thirumalai Chemicals (NSE:TIRUMALCHM) Is Paying Out A Larger Dividend Than Last Year

Thirumalai Chemicals Limited (NSE:TIRUMALCHM) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of August to ₹2.50. This makes the dividend yield 1.0%, which is above the industry average.

See our latest analysis for Thirumalai Chemicals

Thirumalai Chemicals' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Thirumalai Chemicals was easily earning enough to 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 31.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 8.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

Thirumalai Chemicals' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was ₹1.00 in 2013, and the most recent fiscal year payment was ₹2.50. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Thirumalai Chemicals has seen EPS rising for the last five years, at 32% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Thirumalai Chemicals' Dividend

Overall, a dividend increase is always good, and we think that Thirumalai Chemicals 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. As an example, we've identified 2 warning signs for Thirumalai Chemicals that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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