Kearny Financial Corp. (NASDAQ:KRNY) will pay a dividend of $0.11 on the 21st of February. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Kearny Financial

Kearny Financial Will Pay Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Having paid out dividends for 8 years, Kearny Financial has a good history of paying out a part of its earnings to shareholders. But while this history shows that Kearny Financial was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company's net income wasn't enough to cover dividends. This value is at an alarming sign that could mean that Kearny Financial's dividend at its current rate may no longer be sustainable for longer.

The next 12 months is set to see EPS grow by 15.9%. If the dividend continues on its recent course, the future payout ratio in 12 months could be 125%, which is a bit high and could start applying pressure to the balance sheet.

Kearny Financial's Dividend Has Lacked Consistency

Looking back, Kearny Financial's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was $0.08, compared to the most recent full-year payment of $0.44. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

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 hasn't seen much change in its earnings per share over the last five years.

Kearny Financial's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Kearny Financial that investors should know about before committing capital to this stock. Is Kearny Financial not quite the opportunity you were looking for? Why not check out our selection of top 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.