Tamil Nadu Newsprint and Papers (NSE:TNPL) Has Announced That Its Dividend Will Be Reduced To ₹3.00

Tamil Nadu Newsprint and Papers Limited (NSE:TNPL) is reducing its dividend to ₹3.00 on the 23rd of October. The dividend yield of 2.0% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Tamil Nadu Newsprint and Papers

Tamil Nadu Newsprint and Papers' Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Despite not generating a profit, Tamil Nadu Newsprint and Papers is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Recent, EPS has fallen by 39.3%, so this could continue over the next year. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was ₹4.50 in 2011, and the most recent fiscal year payment was ₹3.00. Doing the maths, this is a decline of about 4.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 39% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Tamil Nadu Newsprint and Papers' Dividend Doesn't Look Great

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Tamil Nadu Newsprint and Papers you should be aware of, and 2 of them are a bit concerning. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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