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NorthWestern's (NASDAQ:NWE) Upcoming Dividend Will Be Larger Than Last Year's

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NorthWestern Corporation (NASDAQ:NWE) has announced that it will be increasing its dividend on the 31st of March to US$0.63. This takes the dividend yield to 4.2%, which shareholders will be pleased with.

View our latest analysis for NorthWestern

NorthWestern's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, NorthWestern was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to fall by 7.5% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% in the next 12 months, which is on the higher end of the range we would say is sustainable.

historic-dividend
historic-dividend

NorthWestern Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$1.44 in 2012 to the most recent annual payment of US$2.52. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that NorthWestern's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 0.3% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On NorthWestern's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While NorthWestern is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, NorthWestern has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.