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) has announced it will be reducing its dividend payable on the 23rd of October to ₹3.00. The dividend yield of 2.2% is still a nice boost to shareholder returns, despite the cut.

See 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. Even in the absence of profits, Tamil Nadu Newsprint and Papers is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS might fall by 42.7% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from ₹5.00 in 2011 to the most recent annual payment of ₹3.00. The dividend has shrunk at around 5.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Tamil Nadu Newsprint and Papers' EPS has fallen by approximately 43% per year during the past 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

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Tamil Nadu Newsprint and Papers (2 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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