Northern Trust (NASDAQ:NTRS) Has Announced A Dividend Of US$0.70

Northern Trust Corporation (NASDAQ:NTRS) has announced that it will pay a dividend of US$0.70 per share on the 1st of April. This payment means that the dividend yield will be 2.6%, which is around the industry average.

View our latest analysis for Northern Trust

Northern Trust's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Northern Trust's dividend was only 39% of earnings, however it was paying out 210% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 7.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 41% by next year, which is in a pretty sustainable range.

Northern Trust Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the first annual payment was US$1.12, compared to the most recent full-year payment of US$2.80. This means that it has been growing its distributions at 9.6% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Northern Trust has been growing its earnings per share at 11% a year over the past five years. Northern Trust definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Northern Trust's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Northern Trust 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Northern Trust that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.