Alkem Laboratories Limited (NSE: ALKEM) will increase its dividend on September 19 to ₹ 5.00. This will bring the annual payout from 1.0% to 1.0% of the share price, which is more than most companies in the industry pay.
Discover our latest analyzes for Alkem laboratories
Alkem Laboratories payment provides solid revenue coverage
While it is good to have a high dividend yield, we also need to consider whether the payout is sustainable. However, Alkem Laboratories’ profits easily cover the dividend. This means that most of the business’s income is used to help it grow.
Over the next year, EPS is expected to increase 2.6%. Assuming the dividend continues according to recent trends, we think the payout ratio could be 28% next year, which is within a fairly sustainable range.
Alkem Laboratories dividend lacks consistency
Even in its relatively short history, the company has cut the dividend at least once. For this reason, we are a little cautious about the consistency of dividends over a full economic cycle. Since 2016, the first annual payment was ₹ 6.00, compared to the last full year payment of ₹ 30.00. This works out to a compound annual growth rate (CAGR) of around 38% per year during that time. It’s great to see strong growth in dividend payments, but the cuts are cause for concern as it may indicate that the payment policy is too ambitious.
The dividend is expected to increase
With a relatively volatile dividend, it is even more important to see if earnings per share increase. Alkem Laboratories has impressed us by increasing BPA by 13% per year over the past five years. With decent growth and a low payout rate, we believe this bodes well for Alkem Laboratories’ prospects of increasing its dividend payouts in the future.
We really like the dividend from Alkem Laboratories
In summary, it is always positive to see the dividend increasing and we are particularly pleased with its overall sustainability. The company easily earns enough to cover its dividend payments and it is great to see that those profits are converted into cash flow. Overall, this checks many of the boxes we look for when choosing an income stock.
Market movements attest to the high value of a coherent dividend policy compared to a more unpredictable policy. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. For example, we have chosen 2 warning signs for Alkem laboratories that investors should consider. We have also set up a list of global stocks with a solid dividend.
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