TCPL Packaging (NSE:TCPLPACK) Will Pay A Larger Dividend Than Last Year At ₹20.00

TCPL Packaging Limited (NSE:TCPLPACK) will increase its dividend from last year's comparable payment on the 3rd of September to ₹20.00. The payment will take the dividend yield to 1.4%, which is in line with the average for the industry.

Check out our latest analysis for TCPL Packaging

TCPL Packaging's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, TCPL Packaging was paying a whopping 117% as a dividend, but this only made up 19% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

If the trend of the last few years continues, EPS will grow by 40.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹2.65 in 2013, and the most recent fiscal year payment was ₹20.00. This means that it has been growing its distributions at 22% per annum over that time. TCPL Packaging has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. TCPL Packaging has seen EPS rising for the last five years, at 40% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think TCPL Packaging's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for TCPL Packaging that investors need to be conscious of moving forward. 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.