Waterstone Financial, Inc. (NASDAQ:WSBF) has announced that it will pay a dividend of $0.20 per share on the 1st of November. This payment means that the dividend yield will be 8.0%, which is around the industry average.
Waterstone Financial Will Pay Out More Than It Is Earning
Solid dividend yields are great, but they only really help us if the payment is sustainable.
Waterstone Financial has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Waterstone Financial's payout ratio of 41% is a good sign for current shareholders as this means that earnings decently cover dividends.
Over the next year, EPS is forecast to fall by 25.7%. And if the dividend continues along recent trends, we estimate the future payout ratio could reach 101%, which could put the dividend in jeopardy if the company's earnings don't improve.
Waterstone Financial's Dividend Has Lacked Consistency
Waterstone Financial has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2013, the annual payment back then was $0.20, compared to the most recent full-year payment of $1.30. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. 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.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Waterstone Financial has grown earnings per share at 13% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Our Thoughts On Waterstone Financial's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Waterstone Financial has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Waterstone Financial has 2 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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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