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Readers hoping to buy Neenah, Inc. (NYSE:NP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 13th of August in order to receive the dividend, which the company will pay on the 2nd of September.
Neenah's next dividend payment will be US$0.47 per share. Last year, in total, the company distributed US$1.88 to shareholders. Looking at the last 12 months of distributions, Neenah has a trailing yield of approximately 3.9% on its current stock price of $48.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Neenah can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Neenah paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Neenah didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Neenah reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
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.
We update our analysis on Neenah every 24 hours, so you can always get the latest insights on its financial health, here.
Has Neenah got what it takes to maintain its dividend payments? It's hard to get used to Neenah paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Neenah.
So if you're still interested in Neenah despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Neenah is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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