West Coast Paper Mills (NSE:WSTCSTPAPR) Is Reducing Its Dividend To ₹5.00

West Coast Paper Mills Limited (NSE:WSTCSTPAPR) has announced that on 17th of September, it will be paying a dividend of₹5.00, which a reduction from last year's comparable dividend. However, the dividend yield of 0.9% still remains in a typical range for the industry.

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West Coast Paper Mills' Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. West Coast Paper Mills is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, EPS could fall by 3.4% 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 13%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

See our latest analysis for West Coast Paper Mills

West Coast Paper Mills' Dividend Has Lacked Consistency

It's comforting to see that West Coast Paper Mills 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. The dividend has gone from an annual total of ₹1.00 in 2016 to the most recent total annual payment of ₹5.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. 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 May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that West Coast Paper Mills' earnings per share has fallen at approximately 3.4% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

West Coast Paper Mills' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for West Coast Paper Mills (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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