The board of Capitol Federal Financial, Inc. (NASDAQ:CFFN) has announced that it will pay a dividend of $0.085 per share on the 17th of February. This makes the dividend yield 9.8%, which will augment investor returns quite nicely.

View our latest analysis for Capitol Federal Financial

Capitol Federal Financial Not Expected To Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Capitol Federal Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 58%, which means that Capitol Federal Financial would be able to pay its last dividend without pressure on the balance sheet.

Over the next year, EPS is forecast to fall by 10.0%. And if the dividend continues along the path it has been on recently, the future payout ratio in 12 months could be 155%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.82. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Capitol Federal Financial might have put its house in order since then, but we remain cautious.

Capitol Federal Financial May Find It Hard To Grow The Dividend

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. It's not great to see that Capitol Federal Financial's earnings per share has fallen at approximately 3.7% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Capitol Federal Financial's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Capitol Federal Financial has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Capitol Federal Financial you should be aware of, and 1 of them doesn't sit too well with us. Is Capitol Federal Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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