Chennai Petroleum (NSE:CHENNPETRO) Is Paying Out Less In Dividends Than Last Year

Chennai Petroleum Corporation Limited (NSE:CHENNPETRO) is reducing its dividend from last year's comparable payment to ₹5.00 on the 1st of January. This means that the dividend yield is 0.6%, which is a bit low when comparing to other companies in the industry.

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Chennai Petroleum's Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Chennai Petroleum's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 131.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

View our latest analysis for Chennai Petroleum

Chennai Petroleum's Dividend Has Lacked Consistency

It's comforting to see that Chennai Petroleum has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹4.00 in 2016 to the most recent total annual payment of ₹5.00. This means that it has been growing its distributions at 2.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Chennai Petroleum has been growing its earnings per share at 39% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Chennai Petroleum's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Chennai Petroleum has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Chennai Petroleum that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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