The board of Sound Financial Bancorp, Inc. (NASDAQ:SFBC) has announced that it will pay a dividend of $0.19 per share on the 26th of November. This means the annual payment will be 1.4% of the current stock price, which is lower than the industry average.

See our latest analysis for Sound Financial Bancorp

Sound Financial Bancorp's Dividend Forecasted To Be Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Having distributed dividends for at least 10 years, Sound Financial Bancorp has a long history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, Sound Financial Bancorp's payout ratio sits at 12%, an extremely comfortable number that shows that it can pay its dividend.

Unless the company can turn things around, EPS could fall by 9.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 62%, which is definitely feasible to continue.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.20 in 2014, and the most recent fiscal year payment was $0.76. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Sound Financial Bancorp 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.

Dividend Growth Is Doubtful

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. Sound Financial Bancorp has seen earnings per share falling at 9.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Sound Financial Bancorp's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Sound Financial Bancorp (1 shouldn't be ignored!) that you should be aware of before investing. 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.