Alkem Laboratories' (NSE:ALKEM) Dividend Will Be Reduced To ₹5.00

Alkem Laboratories Limited's (NSE:ALKEM) dividend is being reduced from last year's payment covering the same period to ₹5.00 on the 4th of September. The dividend yield will be in the average range for the industry at 0.8%.

See our latest analysis for Alkem Laboratories

Alkem Laboratories' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, Alkem Laboratories' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 45.6%. 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

Looking back, Alkem Laboratories' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹6.00 in 2016 to the most recent total annual payment of ₹40.00. This implies that the company grew its distributions at a yearly rate of about 27% 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Alkem Laboratories has impressed us by growing EPS at 19% per year over the past five years. Alkem Laboratories definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Alkem Laboratories that investors should take into consideration. Is Alkem Laboratories not quite the opportunity you were looking for? Why not check out our selection of top 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.

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