The advice of Supreme Petrochem Limited (NSE: SUPPETRO) has announced that it will increase its dividend on November 19 to 4.00. This will bring the annual payout to 2.6% of the share price, which is more than what most companies in the industry pay.

Check out our latest review for Supreme Petrochem

Supreme Petrochem’s dividend is well covered by earnings

We like to see robust dividend yields, but it doesn’t matter if the payout isn’t sustainable. Prior to making this announcement, Supreme Petrochem was easily earning enough to cover the dividend. This means that most of what the business earns is used to help it grow.

Going forward, earnings per share could increase by 30.4% over the next year if the trend of recent years continues. If the dividend continues on that path, the payout ratio could be 22% by next year, which we believe may be quite sustainable going forward.

Dividend volatility

The history of the company’s dividends has been marked by instability, with at least one decline in the past 10 years. Since 2011, the first annual payment was 2.80, compared to 16.50 at the last annual payment. This means that he increased his distributions by 19% per year during this period. Dividends have grown rapidly during this time, but with reductions in the past, we are not sure this stock will be a reliable source of income in the future.

The dividend seems likely to increase

With a relatively volatile dividend, it is even more important to see if earnings per share increase. It is encouraging to see that Supreme Petrochem has increased its earnings per share by 30% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and the growth in earnings also allows it to increase the dividend very easily.

Supreme Petrochem Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend increase and we are particularly satisfied with its overall sustainability. Distributions are quite easily covered by profits, which are also converted into cash flow. Considering all of this, this looks like a good dividend opportunity.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have identified 2 warning signs for Supreme Petrochem (1 is significant!) That you should know before investing. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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