There's A Lot To Like About Tamil Nadu Newsprint and Papers' (NSE:TNPL) Upcoming ₹1.00 Dividend

Readers hoping to buy Tamil Nadu Newsprint and Papers Limited (NSE:TNPL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Tamil Nadu Newsprint and Papers' shares before the 20th of September in order to be eligible for the dividend, which will be paid on the 27th of October.

The company's next dividend payment will be ₹1.00 per share, on the back of last year when the company paid a total of ₹4.00 to shareholders. Calculating the last year's worth of payments shows that Tamil Nadu Newsprint and Papers has a trailing yield of 1.8% on the current share price of ₹219.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Tamil Nadu Newsprint and Papers

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tamil Nadu Newsprint and Papers has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Tamil Nadu Newsprint and Papers generated enough free cash flow to afford its dividend. It paid out 20% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Tamil Nadu Newsprint and Papers paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Tamil Nadu Newsprint and Papers's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tamil Nadu Newsprint and Papers has seen its dividend decline 4.0% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Has Tamil Nadu Newsprint and Papers got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Tamil Nadu Newsprint and Papers is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Tamil Nadu Newsprint and Papers is halfway there. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Tamil Nadu Newsprint and Papers is facing. Our analysis shows 3 warning signs for Tamil Nadu Newsprint and Papers that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.