Neo Performance Materials (TSE:NEO) Has Announced A Dividend Of $0.10

The board of Neo Performance Materials Inc. (TSE:NEO) has announced that it will pay a dividend on the 29th of June, with investors receiving $0.10 per share. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Neo Performance Materials

Neo Performance Materials Might Find It Hard To Continue The Dividend

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even though Neo Performance Materials isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 66.4% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

Neo Performance Materials Is Still Building Its Track Record

Neo Performance Materials' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 5 years was $0.284 in 2018, and the most recent fiscal year payment was $0.293. Dividend payments have grown at less than 1% a year over this period. Neo Performance Materials hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Neo Performance Materials' earnings per share has shrunk at approximately 4.3% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

We should note that Neo Performance Materials has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Neo Performance Materials' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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 2 warning signs for Neo Performance Materials that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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