First Financial Northwest (NASDAQ:FFNW) Is Paying Out A Larger Dividend Than Last Year

First Financial Northwest, Inc. (NASDAQ:FFNW) will increase its dividend on the 25th of March to US$0.12, which is 9.1% higher than last year. Based on the announced payment, the dividend yield for the company will be 2.6%, which is fairly typical for the industry.

View our latest analysis for First Financial Northwest

First Financial Northwest's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, First Financial Northwest was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 14.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 44%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

First Financial Northwest Is Still Building Its Track Record

It is great to see that First Financial Northwest has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from US$0.16 in 2013 to the most recent annual payment of US$0.44. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. First Financial Northwest has impressed us by growing EPS at 12% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

First Financial Northwest Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for First Financial Northwest (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.