The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) has announced that it will pay a dividend of US$0.44 per share on the 24th of August. Based on this payment, the dividend yield on the company's stock will be 5.3%, which is an attractive boost to shareholder returns.
Bank of N.T. Butterfield & Son'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. Based on the last payment, Bank of N.T. Butterfield & Son was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 7.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.
Bank of N.T. Butterfield & Son Is Still Building Its Track Record
Bank of N.T. Butterfield & Son's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from US$0.40 in 2016 to the most recent annual payment of US$1.76. This means that it has been growing its distributions at 34% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Bank of N.T. Butterfield & Son has impressed us by growing EPS at 17% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Bank of N.T. Butterfield & Son's 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. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Bank of N.T. Butterfield & Son that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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