Tamil Nadu Newsprint and Papers (NSE:TNPL) Could Be A Buy For Its Upcoming Dividend
Tamil Nadu Newsprint and Papers Limited (NSE:TNPL) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Tamil Nadu Newsprint and Papers' shares before the 17th of September to receive the dividend, which will be paid on the 24th of October.
The company's next dividend payment will be ₹4.00 per share. Last year, in total, the company distributed ₹4.00 to shareholders. Looking at the last 12 months of distributions, Tamil Nadu Newsprint and Papers has a trailing yield of approximately 2.6% on its current stock price of ₹153.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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 11% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 10% of its cash flow last year.
It's positive to see that Tamil Nadu Newsprint and Papers's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Tamil Nadu Newsprint and Papers
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Tamil Nadu Newsprint and Papers, with earnings per share up 4.3% on average over the last five years. 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's dividend payments per share have declined at 6.1% per year on average over the past 10 years, which is uninspiring. Tamil Nadu Newsprint and Papers is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Is Tamil Nadu Newsprint and Papers worth buying for its dividend? Earnings per share have been growing moderately, and Tamil Nadu Newsprint and Papers is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Tamil Nadu Newsprint and Papers is being conservative with its dividend payouts and could still perform reasonably over the long run. Tamil Nadu Newsprint and Papers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Tamil Nadu Newsprint and Papers looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Tamil Nadu Newsprint and Papers (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.
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.