It Might Not Be A Great Idea To Buy Capitol Federal Financial, Inc. (NASDAQ:CFFN) For Its Next Dividend
Capitol Federal Financial, Inc. (NASDAQ:CFFN) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Capitol Federal Financial's shares before the 3rd of November to receive the dividend, which will be paid on the 18th of November.
The company's next dividend payment will be US$0.085 per share, on the back of last year when the company paid a total of US$0.62 to shareholders. Last year's total dividend payments show that Capitol Federal Financial has a trailing yield of 7.8% on the current share price of $8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Capitol Federal Financial can afford its dividend, and if the dividend could grow.
View our latest analysis for Capitol Federal Financial
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Capitol Federal Financial paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Capitol Federal Financial's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
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, Capitol Federal Financial has increased its dividend at approximately 4.5% a year on average.
The Bottom Line
Should investors buy Capitol Federal Financial for the upcoming dividend? Capitol Federal Financial's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its 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 Capitol Federal Financial. For example, Capitol Federal Financial has 2 warning signs (and 1 which can't be ignored) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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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