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

The board of Capitol Federal Financial, Inc. (NASDAQ:CFFN) has announced that it will pay a dividend on the 20th of May, with investors receiving US$0.085 per share. This means the annual payment is 9.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Capitol Federal Financial

Capitol Federal Financial Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Capitol Federal Financial's dividend was only 58% of earnings, however it was paying out 195% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 2.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 161% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was US$0.40 in 2012, and the most recent fiscal year payment was US$0.96. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends 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

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. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Capitol Federal Financial that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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