Neoenergia (BVMF: NEOE3) reduces its dividend to R $ 0.13
Neoenergia SA (BVMF: NEOE3) reduces its dividend to R $ 0.13 on December 31. This means that the dividend yield is 2.7% which is a bit low compared to other companies in the industry.
Discover our latest analysis for Neoenergia
Neoenergia’s payment has strong revenue coverage
If predictable over a long period of time, even low dividend yields can be attractive. Based on the last payment, Neoenergia was earning enough to cover the dividend, but free cash flow was not positive. We believe cash flow should take priority over earnings, so that’s definitely a concern for the dividend going forward.
EPS is expected to decline 30.3% over the next 12 months. If the dividend continues according to recent trends, we estimate the payout ratio could be 19%, which we consider comfortable enough with most of the company’s profits remaining to grow the business in the future.
Neoenergia’s dividend lacked consistency
Even in its short history, we have seen the dividends decline. The dividend went from R $ 0.60 in 2019 to the last annual payment of R $ 0.36. The dividend has fallen by 40% over this period. A business that decreases its dividend over time is usually not what we are looking for.
The dividend seems likely to increase
With a relatively volatile dividend and a bad history of falling dividends, it’s even more important to see if EPS rises. Neoenergia has impressed us by increasing BPA by 39% per year over the past five years. Profits grew rapidly and, with a low payout ratio, we think the company could turn out to be a great dividend stock.
Overall it’s not great to see that the dividend has been reduced, but that could be because the payouts were a bit high before. With no cash flow, it’s hard to see how the business can support the payment of a dividend. We don’t think Neoenergia is a great stock to add to your portfolio if income is your goal.
Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. To this end, Neoenergia has 4 warning signs (and 3 that make us uncomfortable) we think you should know about. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.
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