J. B. Chemicals & Pharmaceuticals (NSE:JBCHEPHARM) Is Due To Pay A Dividend Of ₹8.50

J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) will pay a dividend of ₹8.50 on the 1st of March. Based on this payment, the dividend yield will be 0.8%, which is fairly typical for the industry.

Check out our latest analysis for J. B. Chemicals & Pharmaceuticals

J. B. Chemicals & Pharmaceuticals' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. J. B. Chemicals & Pharmaceuticals is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

Over the next year, EPS is forecast to expand by 93.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹1.00 in 2013, and the most recent fiscal year payment was ₹16.50. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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 J. B. Chemicals & Pharmaceuticals has grown earnings per share at 26% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On J. B. Chemicals & Pharmaceuticals' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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 example, we've picked out 2 warning signs for J. B. Chemicals & Pharmaceuticals that investors should know about before committing capital to this stock. 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.