High Dividend 50: Northwest Bancshares

Updated on June 17th, 2024 by Nathan Parsh
High-yield stocks pay out dividends that are significantly more than market average dividends. For example, the S&P 500’s current yield is only ~1.3%.
High-yield stocks can be very helpful to shore up income after retirement. A $120,000 investment in stocks with an average dividend yield of 5% creates an average of $500 a month in dividends.
However, not all high-dividend stocks are created equal. Some have secure dividend payouts. However, others are in questionable financial condition, leaving shareholders vulnerable to a dividend cut in a downturn.
With this in mind, we created a full list of high-dividend stocks.
Northwest Bancshares (NWBI) is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.
You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:
 

Northwest Bancshares has been a high dividend yield stock since early 2020 when the COVID-19 pandemic impacted the US economy.
While the bank struggled with volatile revenue and earnings immediately following the worst of the pandemic, Northwest Bancshares has recovered somewhat over the past few years.
The bank also continues to pay and increase its dividends. The dividend yield is now 7.5%, meaning the stock could be attractive for income investors.
Business Overview
Northwest Bancshares is a 100+ year-old bank founded in Pennsylvania and headquartered in Columbus, Ohio. Today, the bank has about 142 branches and eight drive-through locations in Ohio, Pennsylvania, Western New York, and Indiana. The bank’s focus is personal and business banking and wealth management.
Northwest takes in deposits and loans out money to consumers and small-to-medium-sized businesses like most community banks. Besides loans, the bank invests deposits in cash and cash equivalents.
Hence, the bank offers consumers checking and savings accounts, mortgages, auto loans, personal loans, and credit cards. For small businesses, the bank offers business checking and savings, credit cards, loans, payables and receivables, retirement plans, etc.
In addition, Northwest provides wealth management, offering mutual funds, insurance, and annuities.
The company announced first-quarter results on April 22nd, 2024. Net interest income fell more than 8% for the quarter, from $112.5 million in the same prior year period to $103.3 million in the most recent period. This decline was a result of a 154% surge in interest expense that more than offset a 19% gain in interest income.
Net income of $29.2 million, or $0.23 per diluted share, compared to $33.7 million, or $0.28 per diluted share, in the prior year, a 13.4% decline year-over-year.
 
However, net income was a slight improvement from the preceding quarter and earnings-per-share results were in-line with the market’s expectations. .
Growth Prospects
A community bank like Northwest generates revenue in three ways: interest on loans, fees on services, and wealth management fees.
Community banks earn revenue from the net interest margin (NIM), which is the spread between the interest rate they give on deposits and the interest rate they charge on loans. This is the net interest income.
Banks organically grow their net interest income by adding customers and expanding into new territory by adding branches. Banks can grow net interest income rapidly in high-population growth areas, such as Florida or Texas.
However, Northwest operates in an area with low or even declining population growth limiting organic growth. Hence, Northwest has been active on the M&A front. In 2019, the bank merged with Donegal expanding in Pennsylvania.
In 2020, Northwest merged with MutualFirst Financial attaining $12.3 billion in assets and expanding into Indiana. The bank will likely continue to merge with smaller banks in its territory.
Northwest can also grow by adding consumers and businesses that utilize more fee-based services, like ATMs. In addition, the bank can grow by adding customers for wealth management.
Since 1995, Northwest has successfully grown its deposit base and loans. Moreover, the recent acquisitions have resulted in a jump in both metrics. In the most recent quarter, both deposits and loans grew by 4.2%.
In Q1 2024, the average yield on loans improved 70 basis points to 5.33%. However, the cost of interest-bearing liabilities increased 132 basis points to 2.28%. As a result, revenue growth has been weaker recently.
Northwest ended the period with had $14.5 billion in total assets, $11.1 billion in total loans, and $12.1 billion in total deposits.
Competitive Advantages & Recession Performance
Northwest Bancshares’ competitive advantage is its focus on community banking. Many consumers and small-to-medium-sized businesses prefer banking at local banks since it keeps money in the community and results in a beneficial economic impact.
Next, many larger regional and national banks are moving more functions online and reducing branch count. Northwest also follows this trend, but a community bank can still build a solid face-to-face relationship through better service.
As with most financial institutions, the Great Recession was a period of weakness for Northwest.

2007 earnings-per-share: $0.44.
2008 earnings-per-share: $0.44 (unchanged).
2009 earnings-per-share: $0.30 (31.8% decline).

While earnings-per-share initially held up in 2008, results were significantly weaker the following year.
That said, Northwest showed an incredible resiliency and established a new high for earnings-per-share the very next year. Ever since, growth has occurred in most years save for 2020, when the pandemic weighed on results.
Dividend Analysis
Northwest has a very high dividend yield of approximately 7.5%. The forward dividend rate is $0.80 per share. The forward dividend yield is greater than the 5-year average of 6.1%. It is also nearly six times the average dividend yield of the S&P 500 Index.
The bank has paid the same quarterly dividend for 13 consecutive quarters, but recently announced its 118th dividend uninterrupted dividend. Even with this pause, Northwest’s dividend growth rate has been about 4.4% in the past decade.
One reason for the dividend pause is that earnings-per-share are projected to be just $0.66 for 2024, giving Northwest an expected payout ratio of 121%. While unsustainable long-term, the bank has a history of paying an elevated dividend and had payout ratios of a similar figure in 2016 and 2020 and the dividend was not cut.
For additional context, Northwest has an average payout ratio of more than 83% for the 2014 to 2023 period, so high payout ratios are not unusual for the bank.
Still, investors should be mindful of the high payout ratio and the potential dividend cut that could occur if earnings-per-share do not return to growth.
Final Thoughts
Banks often pay higher dividends, especially when they are well-capitalized. Many banks faced net interest margin expansion as the US Federal Reserve raised interest rates starting in early 2022. Interest rates have been held steady recently, but the benefit of higher loan yields has been offset by an increase in interest expense.
Northwest has seen that occur in its recent results. In addition, the high yield is excellent, but investors should be aware of the high payout ratio.
That said, we find that Northwest is an acceptable stock for investors seeking a high dividend yield and income.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
High-Yield Individual Security Research

Other Sure Dividend Resources

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