Kearny Financial Corp. (NASDAQ:KRNY) has announced that it will pay a dividend of $0.11 per share on the 22nd of May. Based on this payment, the dividend yield on the company's stock will be 7.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Kearny Financial

Kearny Financial Will Pay Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Kearny Financial has a good history of paying out dividends, with its current track record at 9 years. Despite this history however, Kearny Financial's latest earnings report actually shows that the company didn't have enough earnings to cover its dividends, paying out more than it earned. This is worrying for investors of Kearny Financial, as it points towards the dividends being unsustainable in the long term.

Earnings per share is forecast to rise by 81.8% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the future payout ratio reaching 120% over the next year.

Kearny Financial's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of $0.08 in 2015 to the most recent total annual payment of $0.44. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Kearny Financial has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Kearny Financial's earnings per share has shrunk at 11% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

We're Not Big Fans Of Kearny Financial's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Kearny Financial make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.