Alkem Laboratories (NSE:ALKEM) Is Paying Out A Larger Dividend Than Last Year

Alkem Laboratories Limited (NSE:ALKEM) will increase its dividend from last year's comparable payment on the 24th of September to ₹10.00. Although the dividend is now higher, the yield is only 0.6%, which is below the industry average.

See our latest analysis for Alkem Laboratories

Alkem Laboratories' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. 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.

The next year is set to see EPS grow by 131.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, 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 suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹6.00 in 2016 to the most recent total annual payment of ₹25.00. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year 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.

Alkem Laboratories Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Alkem Laboratories has seen EPS rising for the last five years, at 9.3% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Alkem Laboratories Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Alkem Laboratories is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs 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.