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

The board of Waterstone Financial, Inc. (NASDAQ:WSBF) has announced that it will pay a dividend on the 2nd of August, with investors receiving $0.20 per share. This makes the dividend yield 8.9%, which will augment investor returns quite nicely.

Check out our latest analysis for Waterstone Financial

Waterstone Financial Will Pay Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Waterstone Financial has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. But while this history shows that Waterstone Financial was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company's net income wasn't enough to cover dividends. This is worrying for investors of Waterstone Financial, as it points towards the dividends being unsustainable in the long term.

Earnings per share is forecast to rise by 25.8% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the future payout ratio reaching 103% over the next year.

Waterstone Financial's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from $0.20 total annually to $1.30. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Waterstone Financial's EPS has declined at around 5.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

We're Not Big Fans Of Waterstone Financial's Dividend

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Waterstone Financial that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.