Star Paper Mills (NSE:STARPAPER) Is Paying Out Less In Dividends Than Last Year

Star Paper Mills Limited (NSE:STARPAPER) is reducing its dividend from last year's comparable payment to ₹3.50 on the 18th of October. The dividend yield of 2.0% is still a nice boost to shareholder returns, despite the cut.

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Star Paper Mills' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Star Paper Mills' 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.

Looking forward, earnings per share could rise by 11.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Star Paper Mills

Star Paper Mills Is Still Building Its Track Record

It is great to see that Star Paper Mills has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of ₹2.00 in 2017 to the most recent total annual payment of ₹3.50. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Star Paper Mills to be a consistent dividend paying stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Star Paper Mills has impressed us by growing EPS at 11% per year over the past five years. Star Paper Mills definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Star Paper Mills Looks Like A Great Dividend Stock

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 Star Paper Mills has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Star Paper Mills that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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