NiSource Inc. (NYSE:NI) has announced that it will be increasing its periodic dividend on the 20th of February to $0.30, which will be 7.1% higher than last year's comparable payment amount of $0.28. This takes the annual payment to 2.5% of the current stock price, which unfortunately is below what the industry is paying.

NiSource's Future Dividend Projections Appear Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, NiSource's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 25.4% over the next year. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2016, the annual payment back then was $1.04, compared to the most recent full-year payment of $1.12. Its dividends have grown at less than 1% per annum over this time frame. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that NiSource has grown earnings per share at 25% per year over the past five years. NiSource is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On NiSource's Dividend

Overall, we always like to see the dividend being raised, but we don't think NiSource will make a great income stock. While NiSource 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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.