Northern Oil and Gas (NYSE:NOG)’s upcoming dividend will be higher than last year

The Board of Northern Oil and Gas, Inc. (NYSE:NOG) announced that it will pay its dividend of $0.42 on October 31. This is a higher payment than the comparable dividend paid last year. The payment increases the dividend yield to 4.2%, which is in line with the industry average.

Check out our latest analysis for Northern Oil and Gas

Northern Oil and Gas payment shows solid revenue coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Northern Oil and Gas earned enough to cover the dividend, but free cash flows were not positive. We generally consider cash flow to be more important than income, so we would be cautious about relying on the sustainability of this dividend.

Next year, EPS is expected to grow by 48.3%. Assuming dividend payout remains the same as before, the payout ratio could reach 19% next year, which is in a fairly sustainable range.

Northern Oil and Gas does not have a long payment history

The company has paid a consistent dividend for a number of years, but we’d like to see a longer track record before relying on it. The annual payment over the last 3 years was $0.12 in 2021, and the payment in the last fiscal year was $1.68. This means that payouts have grown 141% annually in that time. The dividend has been growing quickly, but with such a short payment history, we can’t know for sure if the payment can continue to grow in the long term, so caution may be warranted.

Northern Oil and Gas may struggle to increase dividend

Some investors will be eager to buy shares of the company given its dividend history. Earnings have grown 3.1% per year over the past five years, which is admittedly a bit slow. If Northern Oil and Gas struggles to find profitable investments, the company still has the ability to increase its payout ratio to pay out more to shareholders.

Our thoughts on Northern Oil and Gas’s dividend

Overall, we always like to see dividend increases, but we don’t think Northern Oil and Gas will be a good dividend stock. While Northern Oil and Gas earns enough to cover payments, the cash flows are lacking. We’d probably look elsewhere for a dividend investment.

Investors generally prefer companies with a consistent, stable dividend policy over companies with an irregular dividend policy. However, investors must consider a number of other factors besides dividend payments when analyzing a company. To this end, Northern Oil and Gas 5 warning signs (and 1 that is a bit unpleasant) that we think you should know about. Looking for more high-yield dividend ideas? Try our Collection of strong dividend payers.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.