Capitol Federal Financial's (NASDAQ:CFFN) Dividend Will Be US$0.085

Capitol Federal Financial, Inc.'s (NASDAQ:CFFN) investors are due to receive a payment of US$0.085 per share on 20th of August. This means the annual payment is 7.9% of the current stock price, which is above the average for the industry.

See 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 60% of earnings, however it was paying out 137% 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.

EPS is set to fall by 6.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 167%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from US$1.02 to US$0.74. This works out to be a decline of approximately 3.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

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. Although it's important to note that Capitol Federal Financial's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Capitol Federal Financial's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Capitol Federal Financial (1 is potentially serious!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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