Neogen Chemicals (NSE:NEOGEN) Will Pay A Larger Dividend Than Last Year At ₹2.25

Neogen Chemicals Limited (NSE:NEOGEN) has announced that it will be increasing its dividend on the 28th of October to ₹2.25. This takes the annual payment to 0.2% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Neogen Chemicals

Neogen Chemicals' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Neogen Chemicals is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

Over the next year, EPS is forecast to expand by 58.7%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Neogen Chemicals Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the dividend has gone from ₹1.50 to ₹2.25. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year 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

The company's investors will be pleased to have been receiving dividend income for some time. Neogen Chemicals has seen EPS rising for the last five years, at 40% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Neogen Chemicals is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 1 warning sign for Neogen Chemicals that investors need to be conscious of moving forward. 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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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.
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