Capitol Federal Financial (NASDAQ:CFFN) Has Affirmed Its Dividend Of $0.085

The board of Capitol Federal Financial, Inc. (NASDAQ:CFFN) has announced that it will pay a dividend on the 16th of August, with investors receiving $0.085 per share. Based on this payment, the dividend yield on the company's stock will be 5.2%, which is an attractive boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Capitol Federal Financial's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Capitol Federal Financial

Capitol Federal Financial's Payment Expected To Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Having distributed dividends for at least 10 years, Capitol Federal Financial has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Capitol Federal Financial's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Capitol Federal Financialis pulling cash from elsewhere to keep its shareholders happy.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. Additionally, they estimate future payout ratio will be 75% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from $0.73 total annually to $0.34. Doing the maths, this is a decline of about 7.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Capitol Federal Financial's EPS has fallen by approximately 42% per year during the past 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Capitol Federal Financial's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Capitol Federal Financial's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Capitol Federal Financial has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com