Alkem Laboratories' (NSE:ALKEM) Dividend Will Be Increased To ₹37.00

The board of Alkem Laboratories Limited (NSE:ALKEM) has announced that it will be increasing its dividend by 5.7% on the 9th of March to ₹37.00, up from last year's comparable payment of ₹35.00. This takes the annual payment to 0.8% of the current stock price, which is about average for the industry.

Check out our latest analysis for Alkem Laboratories

Alkem Laboratories' Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Alkem Laboratories' 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.

The next year is set to see EPS grow by 31.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

Alkem Laboratories' Dividend Has Lacked Consistency

It's comforting to see that Alkem Laboratories has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was ₹6.00, compared to the most recent full-year payment of ₹40.00. This means that it has been growing its distributions at 23% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Alkem Laboratories has been growing its earnings per share at 14% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Alkem Laboratories' prospects of growing its dividend payments in the future.

Alkem Laboratories Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

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. For instance, we've picked out 1 warning sign for Alkem Laboratories that investors should take into consideration. 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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