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Northwest Bancshares, Inc. (NASDAQ:NWBI) has announced that it will pay a dividend of US$0.20 per share on the 16th of May. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.
See our latest analysis for Northwest Bancshares
Northwest Bancshares' Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Northwest Bancshares was paying out 72% of earnings, but a comparatively small 54% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
EPS is set to fall by 16.6% over the next 12 months. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 91%, meaning that most of the company's earnings are being paid out to shareholders.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was US$0.44 in 2012, and the most recent fiscal year payment was US$0.80. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Northwest Bancshares has impressed us by growing EPS at 18% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
We Really Like Northwest Bancshares' Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.