It looks like Northwest Bancshares, Inc. (NASDAQ:NWBI) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 5th of August in order to be eligible for this dividend, which will be paid on the 14th of August.
Northwest Bancshares’s next dividend payment will be US$0.19 per share. Last year, in total, the company distributed US$0.76 to shareholders. Last year’s total dividend payments show that Northwest Bancshares has a trailing yield of 7.8% on the current share price of $9.74. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Northwest Bancshares can afford its dividend, and if the dividend could grow.
See our latest analysis for Northwest Bancshares
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Northwest Bancshares paid out 134% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
Generally, the higher a company’s payout ratio, the more the dividend is at risk of being reduced.
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. That’s why it’s not ideal to see Northwest Bancshares’s earnings per share have been shrinking at 3.9% a year over the previous five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Northwest Bancshares has delivered 6.9% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Northwest Bancshares is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
To Sum It Up
Has Northwest Bancshares got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Northwest Bancshares is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we’re just not that interested in this company’s dividend.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Northwest Bancshares. Be aware that Northwest Bancshares is showing 3 warning signs in our investment analysis, and 1 of those shouldn’t be ignored…
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting 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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