Northern Oil and Gas (NYSE:NOG) Has Announced That It Will Be Increasing Its Dividend To $0.40

Northern Oil and Gas, Inc. (NYSE:NOG) will increase its dividend from last year's comparable payment on the 31st of January to $0.40. This makes the dividend yield about the same as the industry average at 4.6%.

View our latest analysis for Northern Oil and Gas

Northern Oil and Gas' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Northern Oil and Gas is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 21.8% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 29%, which is comfortable for the company to continue in the future.

Northern Oil and Gas Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2020, the annual payment back then was $0.12, compared to the most recent full-year payment of $1.60. This implies that the company grew its distributions at a yearly rate of about 137% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Northern Oil and Gas has impressed us by growing EPS at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

An additional note is that the company has been raising capital by issuing stock equal to 18% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Northern Oil and Gas' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Northern Oil and Gas' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Northern Oil and Gas (1 can't be ignored!) that you should be aware of before investing. Is Northern Oil and Gas 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.