Tamilnadu Petroproducts (NSE:TNPETRO) Will Pay A Smaller Dividend Than Last Year

Tamilnadu Petroproducts Limited (NSE:TNPETRO) is reducing its dividend from last year's comparable payment to ₹1.20 on the 26th of October. However, the dividend yield of 1.3% is still a decent boost to shareholder returns.

Check out 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. However, prior to this announcement, Tamilnadu Petroproducts' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, EPS could fall by 5.8% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 25%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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. Since 2018, the dividend has gone from ₹0.50 total annually to ₹1.20. This means that it has been growing its distributions at 16% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Tamilnadu Petroproducts' earnings per share has shrunk at approximately 5.8% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Tamilnadu Petroproducts (1 makes us a bit uncomfortable!) 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.