BankFinancial Corporation's (NASDAQ:BFIN) investors are due to receive a payment of $0.10 per share on 23rd of May. This payment means that the dividend yield will be 3.3%, which is around the industry average.

Our free stock report includes 2 warning signs investors should be aware of before investing in BankFinancial. Read for free now.

BankFinancial's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

BankFinancial has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. 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 BankFinancialis pulling cash from elsewhere to keep its shareholders happy.

EPS is set to grow by 40.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the future payout ratio could reach 88% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for BankFinancial

BankFinancial Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.08 in 2015, and the most recent fiscal year payment was $0.40. This means that it has been growing its distributions at 17% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. BankFinancial's earnings per share has shrunk at 12% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

BankFinancial's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about BankFinancial's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for BankFinancial that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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