Last update on 2024-06-27

Northern Trust (NTRS) - Dividend Analysis (Final Score: 7/8)

Detailed dividend performance analysis of Northern Trust (NTRS), scoring 7/8 based on stability, coverage, and growth over 20 years.

Short Analysis - Dividend Score: 7

We're running Northern Trust (NTRS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Northern Trust (NTRS) is evaluated based on 8 criteria for its dividend policy performance. It slightly falls short on the dividend yield, having a current yield of 3.5553% compared to an industry average of 4.33%. However, it displays positive trends in other areas such as an average annual dividend growth rate of 7.805%, significantly lower payout ratios averaging 37.89%, and stable dividend coverage by earnings and cash flow over the last 20 years. Dividends have remained stable without declining more than 20% in any year, and the company has consistently paid dividends for over 25 years. Furthermore, it has executed share buybacks in 13 out of the past 21 years, although somewhat inconsistently.

Insights for Value Investors Seeking Stable Income

Northern Trust presents a mix of strengths and relative weaknesses. Despite not leading in dividend yield, it has a strong history of dividend growth, low payout ratios, consistent dividend coverage, and a long history of dividend payments. These factors contribute positively, making Northern Trust a stock worth considering for cautious but optimistic income-focused investors. The erratic share buybacks may need further scrutiny, but overall the stock shows potential for reliable dividend income.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is important because it measures how much cash flow you're getting for each dollar invested in an equity position. Investors typically seek higher dividend yields as it indicates potentially greater earnings from their investment.

Northern Trust's (NTRS) current dividend yield of 3.5553% falls slightly short of the industry average of 4.33%, suggesting that the firm is not yielding as high a return in this dimension as its peers. Over the past 20 years, Northern Trust’s dividend yield has varied significantly, from a low of 1.34% in 2007 to a high of 3.5553% in 2023, reflecting changes in the company's ability to pay dividends. Notably, the firm's dividend yield has increased from 2.1481% in the 2008 financial crisis to the current rate, signaling a possible improvement in financial health and earning capacity. When examining the long-term trend, Northern Trust’s yield has consistently improved from its early 2000s levels, yet it is still lagging behind the industry benchmarks. This could potentially be a point of concern for income-focused investors. Considering the firm’s increasing stock price, particularly peaking in 2021 at $119.61 before dropping, it indicates that while investors might have gained more from capital appreciation in recent high-performance years, the dividend returns alone remain less competitive within the industry context.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the percentage increase in a company's dividend per share over time. It is critical for assessing whether a company is likely to provide increasing returns to its shareholders over the long term.

Based on the provided dividend per share ratio values, Northern Trust (NTRS) has exhibited substantial variance over the last 20 years. While some years demonstrated strong growth, others showed either minimal growth or even negative growth. The average dividend ratio stands at 7.805%, which is above the 5% threshold, indicating a generally positive long-term trend in dividend growth. Specifically, years such as 2014 (32.5203%) and 2019 (34.0206%) boosted this average. However, zero growth in years like 2009, 2010, 2011, and 2021 should not be overlooked, necessitating a cautious but optimistic interpretation of future dividend potential.

Average annual Payout Ratio lower than 65% in the last 20 years?

average payout ratio

Northern Trust's average payout ratio over the last 20 years stands at 37.89%, well below the critical mark of 65%. This indicates a strong capacity for sustaining dividend payments. Payout ratios are an important measure of financial viability because they show the proportion of earnings returned to shareholders in the form of dividends. With ratios consistently under 50%, peaking at around 56%, Northern Trust demonstrates prudent financial management. This historical data underscores their commitment to both rewarding shareholders and retaining enough capital to ensure future growth, positioning it favorably against the benchmark.

Dividends Well Covered by Earnings?

Analyzing whether dividends are well covered by earnings helps assess if the company sustainably meets dividend payments from its earnings. This ensures long-term dividend reliability.

The ratio of dividends per share covered by earnings per share (EPS) has varied over the last 20 years. Ideally, a ratio above 1 indicates that earnings comfortably cover dividends. However, Northern Trust’s ratios have consistently stayed below 1, indicating that earnings per share are more than adequate to cover dividends each year: from approximately 0.3875 in 2003, improving to 0.5615 in 2023. Despite some fluctuation, the EPS has consistently been at least twice the dividend, suggesting a strong trend of well-covered dividends. Still, occasional dips in EPS (such as during 2010 at 2.7608, covered by a dividend of 1.12) align with market downturns or specific challenges. Overall, this strong trend of divident coverage g illustrates Northern Trust’s prudent dividend policy supported by healthy earnings, favouring investors seeking reliable dividend incomes.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow and why it is important to consider

Dividends are well covered by cash flow when a company generates sufficient free cash flow to cover its dividend payouts. This ratio is crucial because it indicates whether a company can sustain its dividend payments without dipping into other reserves or borrowing money. A ratio of 1 or above indicates full coverage, meaning that the company's free cash flow is equal to or greater than its dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Criterion 4 investigates whether a stable dividend policy has been maintained over the past 20 years. Specifically, this involves assessing if the dividend per share did not decline by more than 20% in any single year within this period. For income-seeking investors, stability in dividends provides a reliable source of income and can also reflect the company's financial health and management's commitment to returning value to shareholders.

Reviewing the provided data from 2003 to 2023, Northern Trust (NTRS) showcases a generally stable trajectory in its dividend per share. However, a notable exception occurs in 2015 when the dividend per share dropped from $1.63 in 2014 to $1.41, reflecting a reduction of approximately 13.5%. This decline does not breach the 20% alert threshold, and thus, overall, the trend can be considered stable. This consistent dividend policy underscores Northern Trust's resilience and reliability, making it attractive to income-focused investors.

Dividends Paid for Over 25 Years?

Examining if a company has paid dividends for over 25 years is critical in assessing its financial stability and shareholder friendliness.

Northern Trust (NTRS) has demonstrated remarkable consistency in paying dividends over the past 25 years, increasing from $0.42 per share in 1998 to $3.00 per share in 2023. This trend is indisputably positive, indicating the company's robust financial health and constant profitability. Through various economic cycles, Northern Trust's commitment to distributing dividends underscores shareholder trust and loyalty while also reflecting a sound financial management strategy. These attributes are particularly appealing to long-term and income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years noise the long-term strategy of a company and the confidence of management in boosting shareholder value.

Over the past 20 years, Northern Trust (NTRS) has bought back shares consistently in 13 out of 21 years. This suggests a disciplined approach towards enhancing shareholder value. However, the average repurchase rate of -0.3688 indicates a slight contraction in the number of shares outstanding, reflecting share buybacks. These share repurchases can be viewed positively, as they can improve per-share metrics and signal management's confidence. Conversely, a meandering trend in specific years, like the overall increase from 2006 to 2009 and the upswing from 2010 to 2012, suggests possible inconsistencies. Overall, the trend is generally positive, but the erratic patterns in certain periods warrant closer examination.