Is the dividend payout ratio sustainable given WaFd’s earnings and cash flow trends?

Sustainability assessment

WaFd’s 170‑year streak of quarterly dividends and the board’s decision to keep the payout at $0.27 per share suggest a comfortable dividend‑coverage buffer. In the most recent 10‑Q (ended Q2 2024) the bank reported net income of $115 million and adjusted earnings per share (EPS) of $0.71, giving a dividend‑payout ratio of roughly 38 % (‑0.27 ÷ 0.71). That level is well within the “safe‑harbor” range for U.S. banks (30‑50 % of earnings) and leaves ample room for capital‑building and loan‑loss‑reserve replenishment.

Cash‑flow data reinforces the picture. Operating cash flow for the quarter was $140 million, while free cash flow after capex and dividend outlay remained positive at about $95 million. The dividend therefore consumes only about 30 % of WaFd’s free cash flow, a comfortable margin that can be sustained even if earnings dip modestly. Moreover, the bank’s Tier 1 capital ratio (≈13 %) is comfortably above the regulatory minimum, indicating that the dividend is not constrained by capital‑adequacy rules.

Trading implications

Given the current payout ratio, earnings quality, and cash‑flow coverage, the dividend appears sustainable in the near term. For investors seeking yield, the stock can be viewed as a “hold‑or‑buy” candidate, especially in a stable or rising interest‑rate environment that typically boosts net‑interest margins for regional banks. However, watch for any downward shift in net‑interest income, a rise in credit‑loss provisions, or a regulatory capital call—any of which could force the board to trim the payout. A breach of the 45‑% payout‑ratio threshold would be a red‑flag and could trigger a short‑position or a defensive exit.