Do These 3 Checks Before Buying Northern Technologies International Corporation (NASDAQ:NTIC) For Its Upcoming Dividend
Readers hoping to buy Northern Technologies International Corporation (NASDAQ:NTIC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Northern Technologies International investors that purchase the stock on or after the 1st of August will not receive the dividend, which will be paid on the 16th of August.
The company's upcoming dividend is US$0.07 a share, following on from the last 12 months, when the company distributed a total of US$0.28 per share to shareholders. Based on the last year's worth of payments, Northern Technologies International stock has a trailing yield of around 2.2% on the current share price of $12.47. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Northern Technologies International has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Northern Technologies International
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Northern Technologies International paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Northern Technologies International paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Northern Technologies International's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Northern Technologies International has delivered an average of 5.8% per year annual increase in its dividend, based on the past six years of dividend payments.
The Bottom Line
Has Northern Technologies International got what it takes to maintain its dividend payments? Northern Technologies International is paying out a reasonable percentage of its income yet an uncomfortably high -652% of its cash flow as dividends. What's more, earnings have barely grown. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Northern Technologies International.
With that in mind though, if the poor dividend characteristics of Northern Technologies International don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 2 warning signs for Northern Technologies International you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
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