Stock Analysis

Are Dividend Investors Making A Mistake With Kentucky First Federal Bancorp (NASDAQ:KFFB)?

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NasdaqGM:KFFB
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Today we'll take a closer look at Kentucky First Federal Bancorp (NASDAQ:KFFB) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A high yield and a long history of paying dividends is an appealing combination for Kentucky First Federal Bancorp. We'd guess that plenty of investors have purchased it for the income. The company also bought back stock during the year, equivalent to approximately 0.5% of the company's market capitalisation at the time. Some simple analysis can reduce the risk of holding Kentucky First Federal Bancorp for its dividend, and we'll focus on the most important aspects below.

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historic-dividend
NasdaqGM:KFFB Historic Dividend March 17th 2021

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. Although Kentucky First Federal Bancorp pays a dividend, it was loss-making during the past year. When a loss-making financial company pays a dividend, the dividend is not being paid out of profit, which is a concern if the company can't return to operating profitably.

Consider getting our latest analysis on Kentucky First Federal Bancorp's financial position 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. Kentucky First Federal Bancorp has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. Its most recent annual dividend was US$0.4 per share, effectively flat on its first payment 10 years ago.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Kentucky First Federal Bancorp's earnings per share have shrunk at 74% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Kentucky First Federal Bancorp's earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Kentucky First Federal Bancorp is paying out a dividend despite reporting a loss; clearly a concern. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. With this information in mind, we think Kentucky First Federal Bancorp may not be an ideal dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Kentucky First Federal Bancorp (of which 1 shouldn't be ignored!) you should know about.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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What are the risks and opportunities for Kentucky First Federal Bancorp?

Kentucky First Federal Bancorp operates as the holding company for First Federal Savings and Loan Association of Hazard, and Frankfort First Bancorp, Inc.

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Risks

  • Does not have a meaningful market cap ($55M)

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Share Price

Market Cap

1Y Return

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Further research on
Kentucky First Federal Bancorp

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