Tamilnadu Petroproducts' (NSE:TNPETRO) Dividend Will Be Reduced To ₹1.50

Tamilnadu Petroproducts Limited (NSE:TNPETRO) is reducing its dividend from last year's comparable payment to ₹1.50 on the 26th of October. The yield is still above the industry average at 1.9%.

View our latest analysis for Tamilnadu Petroproducts

Tamilnadu Petroproducts' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Tamilnadu Petroproducts was paying a whopping 523% as a dividend, but this only made up 14% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 8.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹0.50 total annually to ₹1.50. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Tamilnadu Petroproducts 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.

We Could See Tamilnadu Petroproducts' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tamilnadu Petroproducts has impressed us by growing EPS at 8.7% per year over the past five years. Tamilnadu Petroproducts definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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. 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 3 warning signs for Tamilnadu Petroproducts that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.