Alkem Laboratories Limited (NSE:ALKEM) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 19th of August in order to be eligible for this dividend, which will be paid on the 26th of September.
Alkem Laboratories's next dividend payment will be ₹8.00 per share, on the back of last year when the company paid a total of ₹16.00 to shareholders. Looking at the last 12 months of distributions, Alkem Laboratories has a trailing yield of approximately 0.9% on its current stock price of ₹1767.2. If you buy this business for its dividend, you should have an idea of whether Alkem Laboratories's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Alkem Laboratories paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Alkem Laboratories's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Alkem Laboratories's earnings per share have been growing at 13% a year for the past five years. Alkem Laboratories is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Alkem Laboratories has delivered an average of 28% per year annual increase in its dividend, based on the past 4 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Alkem Laboratories worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Alkem Laboratories, and we would prioritise taking a closer look at it.
Curious what other investors think of Alkem Laboratories? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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