Northwest Bancshares, Inc. (NASDAQ:NWBI) has announced that it will pay a dividend of $0.20 per share on the 14th of February. The dividend yield will be 6.0% based on this payment which is still above the industry average.

See our latest analysis for Northwest Bancshares

Northwest Bancshares' Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Northwest Bancshares has a long history of paying out dividends, with its current track record at a minimum of 10 years. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is very worrying for shareholders, as this shows that Northwest Bancshares will not be able to sustain its dividend at its current rate.

Over the next 3 years, EPS is forecast to expand by 111.5%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 59% over the same time period, which would make us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $1.62 in 2015 to the most recent total annual payment of $0.80. The dividend has shrunk at around 6.8% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's not great to see that Northwest Bancshares' earnings per share has fallen at approximately 5.7% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Northwest Bancshares that investors should know about before committing capital to this stock. Is Northwest Bancshares not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.