NatWest Group (LON:NWG) Is Increasing Its Dividend To £0.10

NatWest Group plc (LON:NWG) will increase its dividend from last year's comparable payment on the 2nd of May to £0.10. This makes the dividend yield 4.8%, which is above the industry average.

Check out our latest analysis for NatWest Group

NatWest Group's Payment Expected To Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having paid out dividends for only 4 years, NatWest Group does not have much of a history being a dividend paying company. Diving into the company's earnings report, the payout ratio is set at 37%, which is a decent ratio of dividend payout to earnings, and may sustain future dividends if the company stays at its current trend.

The next 3 years are set to see EPS grow by 38.4%. The future payout ratio could be 37% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

NatWest Group's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2019, the dividend has gone from £0.0431 total annually to £0.135. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that NatWest Group has grown earnings per share at 40% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think NatWest Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments NatWest Group has been making. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 1 warning sign for NatWest Group that investors need to be conscious of moving forward. 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.