Northern Technologies International Corporation (NASDAQ:NTIC) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 4th of February in order to be eligible for this dividend, which will be paid on the 19th of February.
Northern Technologies International’s upcoming dividend is US$0.065 a share, following on from the last 12 months, when the company distributed a total of US$0.26 per share to shareholders. Looking at the last 12 months of distributions, Northern Technologies International has a trailing yield of approximately 1.8% on its current stock price of $14.55. If you buy this business for its dividend, you should have an idea of whether Northern Technologies International’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is 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. That’s why it’s good to see Northern Technologies International paying out a modest 45% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.
It’s positive to see that Northern Technologies International’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it’s a relief to see Northern Technologies International earnings per share are up 3.3% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Northern Technologies International has delivered 14% dividend growth per year on average over the past two years. 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 growth has been modest, and it’s interesting that Northern Technologies International is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it’s hard to get excited about Northern Technologies International from a dividend perspective.
Curious about whether Northern Technologies International has been able to consistently generate growth? Here’s a chart of its historical revenue and earnings growth.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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. Thank you for reading.