Northern Technologies International (NASDAQ:NTIC) Is Paying Out Less In Dividends Than Last Year

Northern Technologies International Corporation (NASDAQ:NTIC) has announced it will be reducing its dividend payable on the 14th of May to $0.01, which is 86% lower than what investors received last year for the same period. However, the dividend yield of 4.0% is still a decent boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Northern Technologies International's stock price has reduced by 46% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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Northern Technologies International's Projections Indicate Future Payments May Be Unsustainable

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Northern Technologies International was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 68.2% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 190%, which is definitely a bit high to be sustainable going forward.

See our latest analysis for Northern Technologies International

Northern Technologies International's Dividend Has Lacked Consistency

Northern Technologies International has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was $0.20 in 2018, and the most recent fiscal year payment was $0.28. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Northern Technologies International's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Northern Technologies International is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 3 warning signs for Northern Technologies International you should be aware of, and 1 of them doesn't sit too well with us. Is Northern Technologies International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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