The board of Neo Performance Materials Inc. (TSE:NEO) has announced that it will pay a dividend on the 28th of December, with investors receiving $0.10 per share. This means the annual payment is 5.8% of the current stock price, which is above the average for the industry.

See our latest analysis for Neo Performance Materials

Neo Performance Materials 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. Even though Neo Performance Materials isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to expand by 72.3% over the next year. It's encouraging to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing. historic-dividend

Neo Performance Materials Is Still Building Its Track Record

Neo Performance Materials' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the annual payment back then was $0.284, compared to the most recent full-year payment of $0.288. Dividend payments have grown at less than 1% a year over this period. Neo Performance Materials hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth Is Doubtful

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 Neo Performance Materials' EPS has declined at around 7.3% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.



Neo Performance Materials' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 1 warning sign for Neo Performance Materials that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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