NatWest Group plc (LON:NWG) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of April to £0.115. The payment will take the dividend yield to 7.4%, which is in line with the average for the industry.

Check out our latest analysis for NatWest Group

NatWest Group's Dividend Forecasted To Be Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

NatWest Group has established itself as a dividend paying company, given its 6-year history of distributing earnings to shareholders. Based on NatWest Group's last earnings report, the payout ratio is at a decent 35%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to fall by 7.5%. Fortunately, analysts forecast the future payout ratio to be 38% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

NatWest Group's Dividend Has Lacked Consistency

Looking back, NatWest Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 6 years was £0.0431 in 2018, and the most recent fiscal year payment was £0.17. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that NatWest Group has grown earnings per share at 29% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

NatWest Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that NatWest Group is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.