Why It Might Not Make Sense To Buy Neenah, Inc. (NYSE:NP) For Its Upcoming Dividend
Neenah, Inc. (NYSE:NP) is about to trade ex-dividend in the next four days. You can purchase shares before the 11th of February in order to receive the dividend, which the company will pay on the 2nd of March.
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 3.5% on its current stock price of $53.76. If you buy this business for its dividend, you should have an idea of whether Neenah's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Neenah
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Neenah's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Neenah has increased its dividend at approximately 17% a year on average.
We update our analysis on Neenah every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Neenah an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Neenah is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Neenah as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Neenah has 3 warning signs (and 1 which is a bit concerning) we think you should know about.
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.
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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