Is It Smart To Buy Northern Technologies International Corporation (NASDAQ:NTIC) Before It Goes Ex-Dividend?
It looks like Northern Technologies International Corporation (NASDAQ:NTIC) is about to go ex-dividend in the next four days. 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. This means that investors who purchase Northern Technologies International's shares on or after the 2nd of November will not receive the dividend, which will be paid on the 17th of November.
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$0.26 per share to shareholders. Based on the last year's worth of payments, Northern Technologies International stock has a trailing yield of around 1.7% on the current share price of $16.17. If you buy this business for its dividend, you should have an idea of whether Northern Technologies International's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Fortunately Northern Technologies International's payout ratio is modest, at just 41% of profit. A useful secondary check can be to evaluate whether Northern Technologies International generated enough free cash flow to afford its dividend. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Northern Technologies International earnings per share are up 9.7% per annum over the last five years. Decent historical earnings per share growth suggests Northern Technologies International has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Northern Technologies International has increased its dividend at approximately 8.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Northern Technologies International an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Northern Technologies International paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
On that note, you'll want to research what risks Northern Technologies International is facing. In terms of investment risks, we've identified 1 warning sign with Northern Technologies International and understanding them should be part of your investment process.
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.
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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