Have you been keeping an eye on Northern Trust Corporation’s (NASDAQ:NTRS) upcoming dividend of US$0.60 per share payable on the 01 April 2019? Then you only have 4 days left before the stock starts trading ex-dividend on the 07 March 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Northern Trust’s latest financial data to analyse its dividend characteristics.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does Northern Trust fit our criteria?
The company currently pays out 29% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect NTRS’s payout to increase to 38% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.8%. However, EPS is forecasted to fall to $6.63 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. NTRS has increased its DPS from $1.12 to $2.4 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Northern Trust generates a yield of 2.6%, which is high for Capital Markets stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Northern Trust is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three relevant aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for NTRS’s future growth? Take a look at our free research report of analyst consensus for NTRS’s outlook.
- Valuation: What is NTRS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NTRS is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.