Northern Star Resources (ASX:NST) Has Announced That It Will Be Increasing Its Dividend To A$0.155

Northern Star Resources Limited (ASX:NST) will increase its dividend from last year's comparable payment on the 12th of October to A$0.155. This takes the annual payment to 2.4% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Northern Star Resources

Northern Star Resources' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last dividend, Northern Star Resources is earning enough to cover the payment, but then it makes up 106% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 44.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Northern Star Resources Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was A$0.02 in 2013, and the most recent fiscal year payment was A$0.265. This means that it has been growing its distributions at 29% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Northern Star Resources' Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Northern Star Resources has been growing its earnings per share at 9.6% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Northern Star Resources' Dividend

Overall, we always like to see the dividend being raised, but we don't think Northern Star Resources will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 15 Northern Star Resources analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.