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Home Safety Net Can Northwest Bancshares Afford Its 6% Yield?


CAN NORTHWEST BANCSHARES AFFORD ITS 6% YIELD?


written by Marc Lichtenfeld Wednesday, October 16, 2024


Northwest Bancshares (Nasdaq: NWBI) has been around since the Grover Cleveland
administration, having been founded back in 1896. The bank has 139 branches and
drive-through centers in Pennsylvania, Ohio, Indiana, and New York.

Its stock, a small cap with a $1.7 billion market cap, sports a juicy 6% yield.

For banks, our measure of cash flow is net interest income – the difference
between the income earned by lending money and the cost to borrow the funds that
are lent out.

Northwest Bancshares has been steadily growing its net interest income for
years. It generated $361 million in net interest income in 2020, $391 million in
2021, $421 million the following year, and $436 million last year. This year,
the company is forecast to bring in $450 million in net interest income.

In the meantime, it paid out only $102 million in dividends last year for a
payout ratio of just 23%. It is expected to maintain the same payout ratio this
year.

Northwest Bancshares has paid a dividend since 2010, and it raised the payout
every year from 2011 through 2021. It also paid a total of three special
dividends from 2012 to 2014, including a big $1 per share payout in 2014.



Given that the company is paying out only $0.23 in dividends for every dollar of
net interest income, Northwest Bancshares could easily afford to raise the
dividend again.

With a very low payout ratio and a strong track record of paying dividends with
no reductions, there is absolutely no reason to think a dividend cut is on the
horizon. In fact, if anything, management should be considering a dividend
raise.

This 6% yield is very safe.

Dividend Safety Rating: A



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Marc Lichtenfeld has studied the markets for more than 22 years. After getting
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