Sound Financial Bancorp, Inc.'s (NASDAQ:SFBC) dividend will be increasing from last year's payment of the same period to $0.21 on 23rd of February. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.

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. Taking data from its last earnings report, calculating for the company's payout ratio shows 27%, which means that Sound Financial Bancorp would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 4.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 32%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.20 in 2016 to the most recent total annual payment of $0.84. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Sound Financial Bancorp May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sound Financial Bancorp has seen earnings per share falling at 4.3% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Sound Financial Bancorp will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Sound Financial Bancorp has been making. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Sound Financial Bancorp has 2 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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.