Kearny Financial Corp. (NASDAQ:KRNY) has announced that it will pay a dividend of $0.11 per share on the 26th of February. The dividend yield will be 6.4% based on this payment which is still above the industry average.

See our latest analysis for Kearny Financial

Kearny Financial Will Pay Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Kearny Financial has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Kearny Financial's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is worrying for investors of Kearny Financial, as it points towards the dividends being unsustainable in the long term.

Over the next year, EPS is forecast to expand by 140.3%. Assuming the dividend continues along recent trends, we think the future payout ratio could reach 117%, which probably can't continue putting some pressure on the balance sheet.

Kearny Financial's Dividend Has Lacked Consistency

It's comforting to see that Kearny Financial has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. 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 21% 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.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 38% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

Kearny Financial's Dividend Doesn't Look Great

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. The dividend doesn't inspire confidence that it will provide solid income in the future.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Kearny Financial that investors should take into consideration. 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.