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Readers hoping to buy Sound Financial Bancorp, Inc. (NASDAQ:SFBC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase Sound Financial Bancorp's shares before the 9th of May in order to be eligible for the dividend, which will be paid on the 23rd of May.
The company's next dividend payment will be US$0.19 per share, and in the last 12 months, the company paid a total of US$0.76 per share. Based on the last year's worth of payments, Sound Financial Bancorp stock has a trailing yield of around 1.5% on the current share price of US$51.33. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Sound Financial Bancorp paying out a modest 29% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
View our latest analysis for Sound Financial Bancorp
Click here to see how much of its profit Sound Financial Bancorp paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Sound Financial Bancorp's earnings per share have fallen at approximately 5.8% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Sound Financial Bancorp has lifted its dividend by approximately 14% a year on average.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sound Financial Bancorp? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.