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Capitol Federal Financial, Inc. (NASDAQ:CFFN) has announced that it will pay a dividend of $0.085 per share on the 19th of August. Including this payment, the dividend yield on the stock will be 3.6%, which is a modest boost for shareholders' returns.
View our latest analysis for Capitol Federal Financial
Capitol Federal Financial Not Expected To Earn Enough To Cover Its Payments
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.
Capitol Federal Financial has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Capitol Federal Financial's payout ratio of 57% is a good sign as this means that earnings decently cover dividends.
EPS is set to fall by 0.9% over the next 12 months. And if the dividend continues along the path it has been on recently, the future payout ratio in 12 months could be 129%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from $0.40 total annually to $0.34. The dividend has shrunk at around 1.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Capitol Federal Financial's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Capitol Federal Financial is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Capitol Federal Financial (1 shouldn't be ignored!) that you should be aware of before investing. Is Capitol Federal Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.