It looks like Northern Trust Corporation (NASDAQ:NTRS) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 12th of September will not receive the dividend, which will be paid on the 1st of October.
Northern Trust's next dividend payment will be US$0.70 per share. Last year, in total, the company distributed US$2.80 to shareholders. Based on the last year's worth of payments, Northern Trust has a trailing yield of 3.1% on the current stock price of $89.82. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Fortunately Northern Trust's payout ratio is modest, at just 35% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Northern Trust's earnings per share have been growing at 17% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Northern Trust has increased its dividend at approximately 9.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Northern Trust got what it takes to maintain its dividend payments? Companies like Northern Trust that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Northern Trust appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Wondering what the future holds for Northern Trust? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.