Kearny Financial Corp. (NASDAQ:KRNY) has announced that it will pay a dividend of $0.11 per share on the 21st of May. Based on this payment, the dividend yield on the company's stock will be 6.9%, which is an attractive boost to shareholder returns.

We've discovered 1 warning sign about Kearny Financial. View them for free.

Kearny Financial's Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Kearny Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Kearny Financialis pulling cash from elsewhere to keep its shareholders happy.

Earnings per share is forecast to rise by 151.8% over the next year. If recent patterns in the dividend continues, the future payout ratio in 12 months could be 89% which is a bit high but can definitely be sustainable.

Check out our latest analysis for Kearny Financial

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.08 in 2015, and the most recent fiscal year payment was $0.44. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Kearny Financial's EPS has declined at around 46% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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.

The Dividend Could Prove To Be Unreliable

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 track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

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 picked out 1 warning sign 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.