Should First Financial Northwest, Inc. (NASDAQ:FFNW) Be Part Of Your Dividend Portfolio?

Is First Financial Northwest, Inc. (NASDAQ:FFNW) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A slim 2.4% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, First Financial Northwest could have potential. During the year, the company also conducted a buyback equivalent to around 6.7% of its market capitalisation. There are a few simple ways to reduce the risks of buying First Financial Northwest for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on First Financial Northwest!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. First Financial Northwest paid out 33% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

We update our data on First Financial Northwest every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of First Financial Northwest's dividend payments. Its dividend payments have declined on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was US$0.34 in 2010, compared to US$0.36 last year. Its dividends have grown at less than 1% per annum over this time frame.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? First Financial Northwest has grown its earnings per share at 7.6% per annum over the past five years. It's good to see decent earnings growth and a low payout ratio. Companies with these characteristics often display the fastest dividend growth over the long term - assuming earnings can be maintained, of course.

Conclusion

To summarise, shareholders should always check that First Financial Northwest's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that First Financial Northwest has a low and conservative payout ratio. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. First Financial Northwest might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

Earnings growth generally bodes well for the future value of company dividend payments. See if the 3 First Financial Northwest analysts we track are forecasting continued growth with our free report on analyst estimates for the company.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.