Northwest Bancshares (NASDAQ:NWBI) Is Paying Out A Dividend Of $0.20

The board of Northwest Bancshares, Inc. (NASDAQ:NWBI) has announced that it will pay a dividend on the 15th of May, with investors receiving $0.20 per share. This means the annual payment is 7.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Northwest Bancshares

Northwest Bancshares' Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Having distributed dividends for at least 10 years, Northwest Bancshares has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Northwest Bancshares' payout ratio of 72% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to fall by 0.3% over the next year. However, if the dividend continues along recent trends, we estimate the future payout ratio could reach 77%, meaning that most of the company's earnings are being paid out to shareholders.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.48 in 2013, and the most recent fiscal year payment was $0.80. This means that it has been growing its distributions at 5.2% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Northwest Bancshares May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Northwest Bancshares hasn't seen much change in its earnings per share over the last five years. Northwest Bancshares' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Northwest Bancshares is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Northwest Bancshares that you should be aware of before investing. Is Northwest Bancshares not quite the opportunity you were looking for? Why not check out our selection of top 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.