Thirumalai Chemicals (NSE:TIRUMALCHM) Will Pay A Smaller Dividend Than Last Year

Thirumalai Chemicals Limited (NSE:TIRUMALCHM) has announced that on 23rd of August, it will be paying a dividend of₹1.00, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Thirumalai Chemicals

Thirumalai Chemicals' Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even in the absence of profits, Thirumalai Chemicals is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share could rise by 2.4% over the next year if the trend from the last few years continues. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Thirumalai Chemicals' Dividend Has Lacked Consistency

Thirumalai Chemicals has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from ₹0.40 total annually to ₹1.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 2.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth isn't particularly strong, and if the company isn't able to become profitable fairly soon, the dividend could come under pressure.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Thirumalai Chemicals is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Thirumalai Chemicals you should be aware of, and 1 of them is a bit concerning. Is Thirumalai Chemicals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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