Tamil Nadu Newsprint and Papers (NSE:TNPL) Will Pay A Smaller Dividend Than Last Year

Tamil Nadu Newsprint and Papers Limited's (NSE:TNPL) dividend is being reduced to ₹3.00 on the 23rd of October. However, the dividend yield of 1.7% is still a decent boost to shareholder returns.

See our latest analysis for Tamil Nadu Newsprint and Papers

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

If the payments aren't sustainable, a high yield for a few years won't matter that much. Despite not generating a profit, Tamil Nadu Newsprint and Papers is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share could 39.3% over the next year if the trend of the last few years can't be broken. 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

The company's dividend history has been marked by instability, with at least 1 cut 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. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

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 39% 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's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Tamil Nadu Newsprint and Papers has 3 warning signs (and 2 which are a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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