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Don't Buy BankFinancial Corporation (NASDAQ:BFIN) For Its Next Dividend Without Doing These Checks

·3 min read

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that BankFinancial Corporation (NASDAQ:BFIN) is about to go ex-dividend in just four days. You will need to purchase shares before the 11th of August to receive the dividend, which will be paid on the 28th of August.

BankFinancial's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, BankFinancial has a trailing yield of 5.3% on the current stock price of $7.55. If you buy this business for its dividend, you should have an idea of whether BankFinancial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for BankFinancial

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BankFinancial paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by BankFinancial's 17% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, BankFinancial has increased its dividend at approximately 3.6% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is BankFinancial an attractive dividend stock, or better left on the shelf? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. BankFinancial doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with BankFinancial. Be aware that BankFinancial is showing 2 warning signs in our investment analysis, and 1 of those is concerning...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.