Andhra Paper's (NSE:ANDHRAPAP) Dividend Is Being Reduced To ₹1.00

Andhra Paper Limited (NSE:ANDHRAPAP) is reducing its dividend from last year's comparable payment to ₹1.00 on the 6th of September. The dividend yield of 1.1% is still a nice boost to shareholder returns, despite the cut.

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Andhra Paper's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Andhra Paper is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Unless the company can turn things around, EPS could fall by 16.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 27%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Andhra Paper

Andhra Paper's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The last annual payment of ₹1.00 was flat on the annual payment from4 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Andhra Paper's EPS has declined at around 16% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Andhra Paper's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Andhra Paper (of which 1 shouldn't be ignored!) you should know about. Is Andhra Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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