The North West Company Inc. (TSE:NWC) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of October to CA$0.40. This takes the dividend yield to 3.2%, which shareholders will be pleased with.

See our latest analysis for North West

North West's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by North West's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share could rise by 7.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

North West Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from CA$1.12 total annually to CA$1.60. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. North West has impressed us by growing EPS at 7.6% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

North West Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that North West is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Are management backing themselves to deliver performance? Check their shareholdings in North West in our latest insider ownership analysis. Is North West 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.