Is It Worth Considering Tamilnadu Petroproducts Limited (NSE:TNPETRO) For Its Upcoming Dividend?

Readers hoping to buy Tamilnadu Petroproducts Limited (NSE:TNPETRO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Tamilnadu Petroproducts' shares before the 18th of September in order to receive the dividend, which the company will pay on the 26th of October.

The company's next dividend payment will be ₹1.20 per share, and in the last 12 months, the company paid a total of ₹1.20 per share. Based on the last year's worth of payments, Tamilnadu Petroproducts has a trailing yield of 1.2% on the current stock price of ₹97.15. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Tamilnadu Petroproducts

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tamilnadu Petroproducts paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Tamilnadu Petroproducts paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Tamilnadu Petroproducts's earnings are down 2.7% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tamilnadu Petroproducts has delivered an average of 16% per year annual increase in its dividend, based on the past six years of dividend payments.

The Bottom Line

Should investors buy Tamilnadu Petroproducts for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Tamilnadu Petroproducts from a dividend perspective.

In light of that, while Tamilnadu Petroproducts has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Tamilnadu Petroproducts (1 is a bit concerning!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.