Stock Analysis

Waterstone Financial (NASDAQ:WSBF) Has Affirmed Its Dividend Of US$0.20

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NasdaqGS:WSBF
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Waterstone Financial, Inc. (NASDAQ:WSBF) has announced that it will pay a dividend of US$0.20 per share on the 3rd of May. This makes the dividend yield 9.2%, which will augment investor returns quite nicely.

See our latest analysis for Waterstone Financial

Waterstone Financial Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Waterstone Financial's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 52.0%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 151%, which is definitely a bit high to be sustainable going forward.

historic-dividend
NasdaqGS:WSBF Historic Dividend March 19th 2022

Waterstone Financial's Dividend Has Lacked Consistency

Waterstone Financial has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the dividend has gone from US$0.20 to US$1.30. This means that it has been growing its distributions at 26% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Waterstone Financial has impressed us by growing EPS at 25% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Waterstone Financial Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. 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 of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Waterstone Financial you should be aware of, and 1 of them is concerning. 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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