Alkem Laboratories' (NSE:ALKEM) Dividend Is Being Reduced To ₹4.00

Alkem Laboratories Limited's (NSE:ALKEM) dividend is being reduced from last year's payment covering the same period to ₹4.00 on the 24th of September. The dividend yield will be in the average range for the industry at 1.1%.

View our latest analysis for Alkem Laboratories

Alkem Laboratories' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Alkem Laboratories was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 37.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Alkem Laboratories' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ₹6.00 in 2016 to the most recent total annual payment of ₹34.00. This implies that the company grew its distributions at a yearly rate of about 34% 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. We are encouraged to see that Alkem Laboratories has grown earnings per share at 13% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Alkem Laboratories' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Alkem Laboratories has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for Alkem Laboratories that investors should know about before committing capital to this stock. 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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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.