The board of First Financial Northwest, Inc. (NASDAQ:FFNW) has announced that it will pay a dividend on the 28th of March, with investors receiving $0.13 per share. This payment means the dividend yield will be 2.5%, which is below the average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that First Financial Northwest’s stock price has increased by 82% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for First Financial Northwest
First Financial Northwest’s Payment Expected To Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end.
Having distributed dividends for at least 10 years, First Financial Northwest has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Financial Northwest’s payout ratio of 75% is a good sign as this means that earnings decently cover dividends.
Looking forward, earnings per share is forecast to fall by 29.8% over the next 3 years. Fortunately, the future payout ratio could reach 88% in the same 3 years as estimated by analysts, which is on the higher side, but certainly still feasible.
First Financial Northwest Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.16 in 2014, and the most recent fiscal year payment was $0.52. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Let’s not jump to conclusions as things might not be as good as they appear on the surface. First Financial Northwest’s earnings per share has shrunk at 14% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don’t think First Financial Northwest is a great stock to add to your portfolio if income is your focus.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, First Financial Northwest has 3 warning signs (and 1 which shouldn’t be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
