Don't Buy Capitol Federal Financial, Inc. (NASDAQ:CFFN) For Its Next Dividend Without Doing These Checks

It looks like Capitol Federal Financial, Inc. (NASDAQ:CFFN) is about to go ex-dividend in the next three days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Capitol Federal Financial's shares on or after the 3rd of November will not receive the dividend, which will be paid on the 18th of November.

The company's next dividend payment will be US$0.085 per share. Last year, in total, the company distributed US$0.62 to shareholders. Based on the last year's worth of payments, Capitol Federal Financial stock has a trailing yield of around 7.8% on the current share price of $8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Capitol Federal Financial has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Capitol Federal Financial

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. Capitol Federal Financial paid out 55% of its earnings to investors last year, a normal payout level for most businesses.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Capitol Federal Financial's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Capitol Federal Financial has delivered 4.5% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Capitol Federal Financial for the upcoming dividend? Capitol Federal Financial's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that being said, if you're still considering Capitol Federal Financial as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Capitol Federal Financial has 2 warning signs (and 1 which is potentially serious) we think you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.