Northern Trust Corporation (NASDAQ:NTRS) will pay a dividend of US$0.70 on the 1st of January. The dividend yield will be 2.4% based on this payment which is still above the industry average.

See our latest analysis for Northern Trust

Northern Trust's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Northern Trust is earning enough to cover the payment, but the it makes up 210% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 15.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Northern Trust Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$1.12 in 2011 to the most recent annual payment of US$2.80. This means that it has been growing its distributions at 9.6% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See Northern Trust's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Northern Trust has seen EPS rising for the last five years, at 8.6% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Northern Trust's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Northern Trust that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.