Alkem Laboratories' (NSE:ALKEM) Shareholders Will Receive A Smaller Dividend Than Last Year

Alkem Laboratories Limited (NSE:ALKEM) is reducing its dividend from last year's comparable payment to ₹4.00 on the 24th of September. This means that the annual payment will be 1.1% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Alkem Laboratories

Alkem Laboratories' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Alkem Laboratories' dividend was comfortably covered by both cash flow and earnings. 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 37.4%. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Alkem Laboratories' Dividend Has Lacked Consistency

Alkem Laboratories has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from ₹6.00 total annually to ₹34.00. This means that it has been growing its distributions at 34% 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

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 13% 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

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. 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 1 warning sign for Alkem Laboratories that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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