Neogen Chemicals (NSE:NEOGEN) Is Increasing Its Dividend To ₹2.75

Neogen Chemicals Limited's (NSE:NEOGEN) dividend will be increasing from last year's payment of the same period to ₹2.75 on 28th of October. Although the dividend is now higher, the yield is only 0.2%, which is below the industry average.

See our latest analysis for Neogen Chemicals

Neogen Chemicals' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Neogen Chemicals was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 124.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 7.8%, which is in the range that makes us comfortable with the sustainability of the dividend.

Neogen Chemicals Doesn't Have A Long Payment History

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. Since 2019, the dividend has gone from ₹1.50 total annually to ₹2.75. This means that it has been growing its distributions at 22% per annum over that time. Neogen Chemicals has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Neogen Chemicals has impressed us by growing EPS at 38% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Neogen Chemicals' Dividend

Overall, we always like to see the dividend being raised, but we don't think Neogen Chemicals will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Neogen Chemicals is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Neogen Chemicals 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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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.