Neo Performance Materials (TSE:NEO) Has Affirmed Its Dividend Of CA$0.10

By
Simply Wall St
Published
June 02, 2021
TSX:NEO
Source: Shutterstock

Neo Performance Materials Inc. (TSE:NEO) has announced that it will pay a dividend of CA$0.10 per share on the 28th of June. This payment means that the dividend yield will be 2.3%, which is around the industry average.

See our latest analysis for Neo Performance Materials

Neo Performance Materials Might Find It Hard To Continue The Dividend

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Despite not generating a profit, Neo Performance Materials 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.

Over the next year, EPS might fall by 39.1% based on recent performance. 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.

historic-dividend
TSX:NEO Historic Dividend June 3rd 2021

Neo Performance Materials Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from US$0.29 in 2018 to the most recent annual payment of US$0.33. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Neo Performance Materials to be a consistent dividend paying stock.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Neo Performance Materials' earnings per share has shrunk at 39% a year over 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.

Neo Performance Materials' Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Neo Performance Materials that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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