IOL Chemicals and Pharmaceuticals (NSE:IOLCP) Will Pay A Dividend Of ₹4.00

IOL Chemicals and Pharmaceuticals Limited (NSE:IOLCP) will pay a dividend of ₹4.00 on the 8th of March. Based on this payment, the dividend yield on the company's stock will be 1.3%, which is an attractive boost to shareholder returns.

View our latest analysis for IOL Chemicals and Pharmaceuticals

IOL Chemicals and Pharmaceuticals' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, IOL Chemicals and Pharmaceuticals' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 46.5%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

IOL Chemicals and Pharmaceuticals' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2020, the dividend has gone from ₹3.00 total annually to ₹4.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. IOL Chemicals and Pharmaceuticals 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. We are encouraged to see that IOL Chemicals and Pharmaceuticals has grown earnings per share at 41% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about IOL Chemicals and Pharmaceuticals' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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 2 warning signs for IOL Chemicals and Pharmaceuticals 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.