Newtek Business Services (NASDAQ:NEWT) Will Pay A Larger Dividend Than Last Year At US$0.90

Newtek Business Services Corp. (NASDAQ:NEWT) has announced that it will be increasing its dividend on the 30th of September to US$0.90. This will take the annual payment from 7.1% to 8.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Newtek Business Services

Newtek Business Services Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Newtek Business Services was paying out 79% of earnings, but a comparatively small 67% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share is forecast to rise by 4.3% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 95%, which is a bit high and could start applying pressure to the balance sheet.

Newtek Business Services' Dividend Has Lacked Consistency

Newtek Business Services has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The first annual payment during the last 6 years was US$1.56 in 2015, and the most recent fiscal year payment was US$2.05. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

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. Earnings per share has been crawling upwards at 3.1% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Newtek Business Services' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Newtek Business Services' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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. For example, we've identified 6 warning signs for Newtek Business Services (2 are 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 performing dividend stock.

If you’re looking to trade Newtek Business Services, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.