Alkem Laboratories (NSE:ALKEM) Has Announced A Dividend Of ₹8.00

Alkem Laboratories Limited (NSE:ALKEM) has announced that it will pay a dividend of ₹8.00 per share on the 24th of September. This takes the annual payment to 0.9% of the current stock price, which is about average for the industry.

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Alkem Laboratories' Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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.

Over the next year, EPS is forecast to expand by 24.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Alkem Laboratories

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 ₹45.00. This means that it has been growing its distributions at 25% per annum over that time. Alkem Laboratories has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Alkem Laboratories has seen EPS rising for the last five years, at 14% per annum. 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

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.