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

Alkem Laboratories Limited's (NSE:ALKEM) dividend is being reduced from last year's payment covering the same period to ₹5.00 on the 29th of September. The dividend yield will be in the average range for the industry at 0.8%.

View our latest analysis for Alkem Laboratories

Alkem Laboratories' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, Alkem Laboratories' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 46.8%. 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

Looking back, Alkem Laboratories' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. 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 27% 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Alkem Laboratories has grown earnings per share at 19% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Alkem Laboratories' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Alkem Laboratories does. 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.

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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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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