Neo Performance Materials (TSE:NEO) Is Paying Out A Dividend Of $0.10

Neo Performance Materials Inc. (TSE:NEO) has announced that it will pay a dividend of $0.10 per share on the 29th of June. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

See our latest analysis for Neo Performance Materials

Neo Performance Materials Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even in the absence of profits, Neo Performance Materials is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Earnings per share is forecast to rise by 157.3% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Neo Performance Materials Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 5 years was $0.284 in 2018, and the most recent fiscal year payment was $0.289. Its dividends have grown at less than 1% per annum over this time frame. 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.

Neo Performance Materials May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. In the last five years, Neo Performance Materials' earnings per share has shrunk at approximately 4.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We should note that Neo Performance Materials has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Neo Performance Materials' Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Neo Performance Materials make more consistent payments in the future. 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. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Neo Performance Materials you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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