Investors who want to cash in on Capitol Federal Financial Inc’s (NASDAQ:CFFN) upcoming dividend of US$0.085 per share have only 4 days left to buy the shares before its ex-dividend date, 01 November 2018, in time for dividends payable on the 16 November 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding Capitol Federal Financial can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Capitol Federal Financial fare?
The company currently pays out 47% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CFFN’s payout to increase to 126% of its earnings, which leads to a dividend yield of 8.3%. In addition to this, EPS should increase to $0.78. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. However this does bring about uncertainty around the sustainability of the payout ratio.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Not only have dividend payouts from Capitol Federal Financial fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, Capitol Federal Financial has a yield of 7.2%, which is high for Mortgage stocks.
If Capitol Federal Financial is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three key factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CFFN’s future growth? Take a look at our free research report of analyst consensus for CFFN’s outlook.
- Valuation: What is CFFN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CFFN is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.