Northwest Bancshares' (NASDAQ:NWBI) Dividend Will Be US$0.20

The board of Northwest Bancshares, Inc. (NASDAQ:NWBI) has announced that it will pay a dividend on the 16th of May, with investors receiving US$0.20 per share. Based on this payment, the dividend yield on the company's stock will be 6.3%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Northwest Bancshares

Northwest Bancshares' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Northwest Bancshares' dividend made up quite a large proportion of earnings but only 54% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to fall by 15.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 90%, which is definitely on the higher side.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was US$0.44, compared to the most recent full-year payment of US$0.80. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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. Northwest Bancshares has impressed us by growing EPS at 18% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

We Really Like Northwest Bancshares' Dividend

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Northwest Bancshares has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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