Neenah, Inc. (NYSE:NP) will pay a dividend of US$0.47 on the 2nd of March. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for Neenah

Neenah's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Neenah isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This makes us feel that the dividend will be hard to maintain.

Recent, EPS has fallen by 43.3%, so this could continue over the next year. 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. Since 2012, the first annual payment was US$0.44, compared to the most recent full-year payment of US$1.90. This means that it has been growing its distributions at 16% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Neenah's earnings per share has shrunk at 43% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

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. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Neenah you should be aware of, and 1 of them is concerning. We have also put together a list of global stocks with a solid dividend.

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