North West (TSE:NWC) Has Announced That It Will Be Increasing Its Dividend To CA$0.39

The North West Company Inc. (TSE:NWC) will increase its dividend from last year's comparable payment on the 13th of October to CA$0.39. This makes the dividend yield 4.4%, which is above the industry average.

See our latest analysis for North West

North West's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite comfortably covered by North West's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

If the trend of the last few years continues, EPS will grow by 11.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

North West Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CA$1.04 in 2013 to the most recent total annual payment of CA$1.56. This means that it has been growing its distributions at 4.1% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that North West has been growing its earnings per share at 12% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 analysts we track are forecasting for North West for free with public 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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