Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kearny Financial Corp. (NASDAQ:KRNY) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Meaning, you will need to purchase Kearny Financial's shares before the 12th of August to receive the dividend, which will be paid on the 26th of August.

The company's upcoming dividend is US$0.11 a share, following on from the last 12 months, when the company distributed a total of US$0.44 per share to shareholders. Calculating the last year's worth of payments shows that Kearny Financial has a trailing yield of 4.6% on the current share price of US$9.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Kearny Financial can afford its dividend, and if the dividend could grow.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Kearny Financial's earnings per share have dropped 5.6% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kearny Financial has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Kearny Financial is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Has Kearny Financial got what it takes to maintain its dividend payments? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Kearny Financial doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in Kearny Financial and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 1 warning sign with Kearny Financial and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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.