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Capitol Federal Financial, Inc. (NASDAQ:CFFN) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 6th of May in order to be eligible for this dividend, which will be paid on the 21st of May.
Capitol Federal Financial's next dividend payment will be US$0.085 per share. Last year, in total, the company distributed US$0.47 to shareholders. Last year's total dividend payments show that Capitol Federal Financial has a trailing yield of 3.6% on the current share price of $12.925. If you buy this business for its dividend, you should have an idea of whether Capitol Federal Financial's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Capitol Federal Financial
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Capitol Federal Financial's 5.1% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Capitol Federal Financial has seen its dividend decline 7.4% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
To Sum It Up
Is Capitol Federal Financial worth buying for its dividend? We're not overly enthused to see Capitol Federal Financial's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Capitol Federal Financial doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.