Northern Star Resources Limited (ASX:NST) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of October to A$0.155. This takes the annual payment to 2.3% of the current stock price, which unfortunately is below what the industry is paying.
Northern Star Resources' Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Northern Star Resources' dividend was only 52% of earnings, however it was paying out 106% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Looking forward, earnings per share is forecast to rise by 44.7% over the next year. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.
Northern Star Resources Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from A$0.02 total annually to A$0.265. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Northern Star Resources Could Grow Its Dividend
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Northern Star Resources has been growing its earnings per share at 9.6% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Northern Star Resources is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 15 Northern Star Resources analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Northern Star Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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