Washington Federal Hikes Dividend - Analyst Blog

On Monday, Washington Federal Inc. (WFSL) announced a 33% increase in its quarterly cash dividend to 8 cents per share. The new dividend will be paid on January 13, 2012 to the stockholders of record as of December 30, 2011.

This is the second dividend rise for Washington Federal since the end of the recent financial crisis. Before this, the company had increased its quarterly dividend by 1 cent per share to 6 cents in December 2010.

However, in midst of the financial crisis, Washington Federal had to bring down its quarterly dividend. In late 2008, the company shrunk its dividend from 21 cents per share to 5 cents. The company then continued to pay this dividend for the next two years.

Furthermore, Washington Federal is also quite active when it comes to boosting its shareholders’ wealth through share repurchases. For the fiscal year ending September 30, 2011, the company bought back 3,804,800 shares at an average price of $15.68 per share. The company still has an authorization to repurchase up to an additional 9,083,514 shares, as of September 30, 2011.

Though dividend rise is a very encouraging step, we must look at other aspects as well before giving a thumbs up to Washington Federal for boosting shareholders value. First thing that should be taken into consideration is the dividend yield (annual dividend per share/stock’s price per share) and the other one is the dividend payout ratio (annual dividend per share/annual earnings per share).

The company’s previous had a dividend yield of 1.84%. With dividend increasing to 8 cents, the dividend yield increases to 2.45%. As Washington Federal’s share price has remained stable over the last 90 days, yield did not increase due to price rise, leading to the conclusion that the shareholders will actually be benefited from a dividend hike.

On the other hand, the company’s payout ratio stood at 24% when its previous annual dividend was 24 cents. For fiscal 2012, considering the Zacks Consensus Estimate of $1.27 per share and the increased dividend, the payout ratio is expected to be 25%. An almost stable payout ratio signifies improved shareholder value.

Therefore, we believe that this dividend rise will definitely increase the confidence level of the shareholders in Washington Federal’s earnings.

Washington Federal currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of the peers of the company, Astoria Financial Corporation (AF) retains a Zacks #4 Rank (short-term Sell rating).

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