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The board of First Financial Northwest, Inc. (NASDAQ:FFNW) has announced that it will pay a dividend on the 21st of June, with investors receiving $0.13 per share. This payment means the dividend yield will be 2.4%, which is below the average for the industry.
View our latest analysis for First Financial Northwest
First Financial Northwest Not Expected To Earn Enough To Cover Its Payments
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.
First Financial Northwest has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that First Financial Northwestis pulling cash from elsewhere to keep its shareholders happy.
The next 12 months is set to see EPS grow by 27.7%. If the dividend continues on its recent course, the future payout ratio in 12 months could be 135%, which is a bit high and could start applying pressure to the balance sheet.
First Financial Northwest Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.16 in 2014, and the most recent fiscal year payment was $0.52. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 19% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
First Financial Northwest's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.