Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kentucky First Federal Bancorp (NASDAQ:KFFB) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 30th of July in order to be eligible for this dividend, which will be paid on the 17th of August.
Kentucky First Federal Bancorp's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Calculating the last year's worth of payments shows that Kentucky First Federal Bancorp has a trailing yield of 6.3% on the current share price of $6.3. If you buy this business for its dividend, you should have an idea of whether Kentucky First Federal Bancorp's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. An unusually high payout ratio of 324% of its profit suggests something is happening other than the usual distribution of profits to shareholders.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Kentucky First Federal Bancorp's 12% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kentucky First Federal Bancorp's dividend payments are effectively flat on where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Is Kentucky First Federal Bancorp an attractive dividend stock, or better left on the shelf? Not only are earnings per share shrinking, but Kentucky First Federal Bancorp 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. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Although, if you're still interested in Kentucky First Federal Bancorp and want to know more, you'll find it very useful to know what risks this stock faces. For example, Kentucky First Federal Bancorp has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. 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.
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