It looks like Northern Technologies International Corporation (NASDAQ:NTIC) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 4th of February in order to be eligible for this dividend, which will be paid on the 19th of February.
Northern Technologies International's next dividend payment will be US$0.065 per share, on the back of last year when the company paid a total of US$0.26 to shareholders. Looking at the last 12 months of distributions, Northern Technologies International has a trailing yield of approximately 1.8% on its current stock price of $14.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Northern Technologies International can afford its dividend, and if the dividend could grow.
See our latest analysis for Northern Technologies International
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Northern Technologies International paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Northern Technologies International generated enough free cash flow to afford its dividend. Dividends consumed 64% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Northern Technologies International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. With that in mind, we're encouraged by the steady growth at Northern Technologies International, with earnings per share up 3.3% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Northern Technologies International has delivered 14% dividend growth per year on average over the past two years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Northern Technologies International for the upcoming dividend? Earnings per share have been growing at a steady rate, and Northern Technologies International paid out less than half its profits and more than half its free cash flow as dividends over the last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Keen to explore more data on Northern Technologies International's financial performance? Check out our visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
2020-01-31 10:40:00Z
https://finance.yahoo.com/news/northern-technologies-international-corporation-nasdaq-104004836.html
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