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The board of Neo Performance Materials Inc. (TSE:NEO) has announced that it will pay a dividend on the 27th of December, with investors receiving $0.10 per share. Based on this payment, the dividend yield on the company's stock will be 5.0%, which is an attractive boost to shareholder returns.
See our latest analysis for Neo Performance Materials
Neo Performance Materials' Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Neo Performance Materials' Could Struggle to Maintain Dividend Payments In The Future
Neo Performance Materials' Future Dividends May Potentially Be At Risk
A big dividend yield for a few years doesn't mean much if it can't be sustained. Despite not generating a profit, Neo Performance Materials is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 189%, which is on the unsustainable side.
Neo Performance Materials' Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $0.284 in 2017 to the most recent total annual payment of $0.284. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
We Could See Neo Performance Materials' Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Neo Performance Materials has impressed us by growing EPS at 9.7% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.
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 Neo Performance Materials' payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.