Stock Analysis

NorthWestern's (NASDAQ:NWE) Shareholders Will Receive A Bigger Dividend Than Last Year

NasdaqGS:NWE
Source: Shutterstock

NorthWestern Corporation (NASDAQ:NWE) will increase its dividend from last year's comparable payment on the 31st of March to $0.64. This will take the dividend yield to an attractive 4.4%, providing a nice boost to shareholder returns.

See our latest analysis for NorthWestern

NorthWestern's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, NorthWestern's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

The next year is set to see EPS grow by 15.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

historic-dividend
NasdaqGS:NWE Historic Dividend February 21st 2023

NorthWestern Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was $1.48, compared to the most recent full-year payment of $2.56. This means that it has been growing its distributions at 5.6% 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.

NorthWestern May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. NorthWestern hasn't seen much change in its earnings per share over the last five years.

We should note that NorthWestern has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

NorthWestern's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for NorthWestern you should be aware of, and 1 of them shouldn't be ignored. Is NorthWestern not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether NorthWestern Energy Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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

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.