Readers hoping to buy The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Meaning, you will need to purchase Bank of N.T. Butterfield & Son's shares before the 12th of August to receive the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be US$0.50 per share, on the back of last year when the company paid a total of US$2.00 to shareholders. Looking at the last 12 months of distributions, Bank of N.T. Butterfield & Son has a trailing yield of approximately 3.2% on its current stock price of US$62.32. If you buy this business for its dividend, you should have an idea of whether Bank of N.T. Butterfield & Son's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Bank of N.T. Butterfield & Son paying out a modest 34% of its earnings.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Bank of N.T. Butterfield & Son's earnings per share have been growing at 15% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Bank of N.T. Butterfield & Son has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has Bank of N.T. Butterfield & Son got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Bank of N.T. Butterfield & Son looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in Bank of N.T. Butterfield & Son for the dividends alone, you should always be mindful of the risks involved. For example - Bank of N.T. Butterfield & Son has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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.