We Wouldn't Be Too Quick To Buy Capitol Federal Financial, Inc. (NASDAQ:CFFN) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Capitol Federal Financial, Inc. (NASDAQ:CFFN) is about to trade ex-dividend in the next 4 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 1st of November will not receive the dividend, which will be paid on the 15th of November.

The company's next dividend payment will be US$0.085 per share. Last year, in total, the company distributed US$0.34 to shareholders. Last year's total dividend payments show that Capitol Federal Financial has a trailing yield of 5.2% on the current share price of US$6.51. If you buy this business for its dividend, you should have an idea of whether Capitol Federal Financial's dividend is reliable and sustainable. So we need to investigate whether Capitol Federal Financial can afford its dividend, and if the dividend could grow.

See our latest analysis for Capitol Federal Financial

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Capitol Federal Financial paid out 116% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Capitol Federal Financial's earnings per share have dropped 16% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Capitol Federal Financial has seen its dividend decline 7.4% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has Capitol Federal Financial got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Capitol Federal Financial is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Capitol Federal Financial. In terms of investment risks, we've identified 1 warning sign with Capitol Federal Financial and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.