Northwest Bancshares, Inc. (NASDAQ:NWBI) will pay a dividend of $0.20 on the 18th of February. This makes the dividend yield 6.3%, which will augment investor returns quite nicely.

Northwest Bancshares' Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having distributed dividends for at least 10 years, Northwest Bancshares has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 86%, which means that Northwest Bancshares would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 73.2% over the next 3 years. For the same time horizon, analysts estimate that the future payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

Northwest Bancshares Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2016, the annual payment back then was $0.56, compared to the most recent full-year payment of $0.80. This means that it has been growing its distributions at 3.6% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Northwest Bancshares Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. Northwest Bancshares has seen EPS rising for the last five years, at 6.7% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

An additional note is that the company has been raising capital by issuing stock equal to 15% 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.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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.