Tamilnadu Petroproducts (NSE:TNPETRO) Is Paying Out Less In Dividends Than Last Year

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 1.5%.

Check out our latest analysis for Tamilnadu Petroproducts

Tamilnadu Petroproducts' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Tamilnadu Petroproducts was paying a whopping 521% as a dividend, but this only made up 14% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 8.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Tamilnadu Petroproducts' Dividend Has Lacked Consistency

It's comforting to see that Tamilnadu Petroproducts has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2018 to the most recent total annual payment of ₹1.50. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Tamilnadu Petroproducts Could Grow Its Dividend

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. It's encouraging to see that Tamilnadu Petroproducts has been growing its earnings per share at 8.7% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Tamilnadu Petroproducts' Dividend

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. While Tamilnadu Petroproducts is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 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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