The board of First Northwest Bancorp (NASDAQ:FNWB) has announced that it will pay a dividend on the 23rd of May, with investors receiving $0.07 per share. Based on this payment, the dividend yield will be 2.7%, which is fairly typical for the industry.

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First Northwest Bancorp Might Find It Hard To Continue The Dividend

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

First Northwest Bancorp has a good history of paying out dividends, with its current track record at 6 years. Despite this history however, First Northwest Bancorp'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 an alarming sign for the sustainability of its dividends, as it may mean that First Northwest Bancorpis pulling cash from elsewhere to keep its shareholders happy.

Over the next year, EPS might fall by 26.8% based on recent performance. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Check out our latest analysis for First Northwest Bancorp

First Northwest Bancorp Is Still Building Its Track Record

It is great to see that First Northwest Bancorp has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2019, the annual payment back then was $0.12, compared to the most recent full-year payment of $0.28. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. First Northwest Bancorp has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. First Northwest Bancorp's earnings per share has shrunk at 27% a year over the past 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.

First Northwest Bancorp'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 seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for First Northwest Bancorp (1 shouldn't be ignored!) that you should be aware of before investing. Is First Northwest Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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