Tamilnadu Petroproducts' (NSE:TNPETRO) Shareholders Will Receive A Smaller Dividend Than Last Year

Tamilnadu Petroproducts Limited (NSE:TNPETRO) has announced that on 26th of October, it will be paying a dividend of₹1.50, which a reduction from last year's comparable dividend. This means the annual payment is 1.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Tamilnadu Petroproducts

Tamilnadu Petroproducts' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it 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. 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.

Over the next year, EPS could expand by 8.7% if recent trends continue. 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.

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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from ₹0.50 total annually to ₹1.50. This means that it has been growing its distributions at 25% per annum 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.

The Dividend Has Growth Potential

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. With a decent amount of growth and a low payout ratio, we think this bodes well for Tamilnadu Petroproducts' prospects of growing its dividend payments in the future.

Our Thoughts On Tamilnadu Petroproducts' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 3 warning signs for Tamilnadu Petroproducts that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.