The board of The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) has announced that it will pay a dividend of $0.44 per share on the 19th of August. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.

View our latest analysis for Bank of N.T. Butterfield & Son

Bank of N.T. Butterfield & Son's Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having paid out dividends for 8 years, Bank of N.T. Butterfield & Son has a good history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Bank of N.T. Butterfield & Son's payout ratio of 40% is a good sign for current shareholders as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to rise by 4.0% over the next year. If the dividend continues on this path, the future payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Bank of N.T. Butterfield & Son Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the annual payment back then was $0.40, compared to the most recent full-year payment of $1.76. This means that it has been growing its distributions at 20% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Bank of N.T. Butterfield & Son has been growing its earnings per share at 5.2% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

Overall, we think Bank of N.T. Butterfield & Son is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Bank of N.T. Butterfield & Son (of which 1 makes us a bit uncomfortable!) you should know about. Is Bank of N.T. Butterfield & Son not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com