NatWest Group (LON:NWG) Has Announced That It Will Be Increasing Its Dividend To £0.115

The board of NatWest Group plc (LON:NWG) has announced that it will be paying its dividend of £0.115 on the 29th of April, an increased payment from last year's comparable dividend. This takes the annual payment to 7.4% of the current stock price, which is about average for the industry.

See our latest analysis for NatWest Group

NatWest Group's Dividend Forecasted To Be Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

NatWest Group has a good history of paying out dividends, with its current track record at 6 years. Based on NatWest Group's last earnings report, the payout ratio is at a decent 35%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 8.0% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 38% over the same time period, which we think the company can easily maintain.

NatWest Group's Dividend Has Lacked Consistency

NatWest Group has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.0431 in 2018 to the most recent total annual payment of £0.17. This means that it has been growing its distributions at 26% per annum over that time. NatWest Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. NatWest Group has seen EPS rising for the last five years, at 29% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like NatWest Group's Dividend

Overall, a dividend increase is always good, and we think that NatWest Group is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for NatWest Group (1 is a bit unpleasant!) that you should be aware of before investing. 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.