NorthWestern Corporation (NYSE:NWE) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 3.8%, and has a market cap of US$3.1b. Should it have a place in your portfolio? Let’s take a look at NorthWestern in more detail.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five 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 is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does NorthWestern fit our criteria?
The company currently pays out 61% 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 NWE’s payout to increase to 69% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.0%. However, EPS is forecasted to fall to $3.5 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. NWE has increased its DPS from $1.32 to $2.2 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes NWE a true dividend rockstar.
Compared to its peers, NorthWestern generates a yield of 3.8%, which is high for Integrated Utilities stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank NorthWestern as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three relevant aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for NWE’s future growth? Take a look at our free research report of analyst consensus for NWE’s outlook.
- Valuation: What is NWE 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 NWE 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.