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

West Coast Paper Mills Limited's (NSE:WSTCSTPAPR) dividend is being reduced from last year's payment covering the same period to ₹5.00 on the 27th of September. This means the annual payment is 1.0% of the current stock price, which is above the average for the industry.

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West Coast Paper Mills' Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, West Coast Paper Mills' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

EPS is set to fall by 3.4% over the next 12 months if recent trends continue. 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.

Check out our latest analysis for West Coast Paper Mills

West Coast Paper Mills' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2016, the dividend has gone from ₹1.00 total annually to ₹5.00. This means that it has been growing its distributions at 20% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though West Coast Paper Mills' EPS has declined at around 3.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

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 probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for West Coast Paper Mills you should be aware of, and 1 of them is potentially serious. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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