Neenah (NYSE:NP) Has Re-Affirmed Its Dividend Of US$0.47

The board of Neenah, Inc. (NYSE:NP) has announced that it will pay a dividend of US$0.47 per share on the 2nd of December. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

See our latest analysis for Neenah

Neenah Might Find It Hard To Continue The Dividend

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Neenah is unprofitable despite paying a dividend, and it is paying out 118% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS might fall by 43.3% based on recent performance. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Neenah Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$0.44 in 2011 to the most recent annual payment of US$1.90. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though Neenah's EPS has declined at around 43% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Neenah's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Neenah has 2 warning signs (and 1 which is significant) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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