J. B. Chemicals & Pharmaceuticals' (NSE:JBCHEPHARM) Dividend Will Be Increased To ₹9.25

J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of September to ₹9.25. This takes the annual payment to 0.7% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for J. B. Chemicals & Pharmaceuticals

J. B. Chemicals & Pharmaceuticals' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, J. B. Chemicals & Pharmaceuticals' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 76.9%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹3.00 in 2013, and the most recent fiscal year payment was ₹17.75. This means that it has been growing its distributions at 19% 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. J. B. Chemicals & Pharmaceuticals has impressed us by growing EPS at 26% 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While J. B. Chemicals & Pharmaceuticals is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for J. B. Chemicals & Pharmaceuticals (of which 1 is significant!) you should know about. Is J. B. Chemicals & Pharmaceuticals 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.