Here's Why We're Wary Of Buying Neenah's (NYSE:NP) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Neenah, Inc. (NYSE:NP) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 11th of February to receive the dividend, which will be paid on the 2nd of March.

Neenah's next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Looking at the last 12 months of distributions, Neenah has a trailing yield of approximately 3.5% on its current stock price of $53.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Neenah

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Neenah reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 37% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Neenah was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Neenah has delivered 17% dividend growth per year on average over the past 10 years.

Get our latest analysis on Neenah's balance sheet health here.

Final Takeaway

Is Neenah an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Neenah is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Neenah and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Neenah is showing 3 warning signs in our investment analysis, and 1 of those is concerning...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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