Washington Federal Continues to Pay Dividends

On June 29, 2009, Washington Federal, Inc. (WFSL - Analyst Report) declared a quarterly cash dividend of $0.05 per share. The dividend is payable on July 24, 2009 to shareholders of record on July 10, 2009. This will mark Washington Federal’s 106th consecutive quarterly cash dividend payment. In December 2008, the company last decreased its cash dividend by $0.165 per share or 76.7% to the current level from $0.215 per share paid in October, 2008. However, we are very impressed to see that the company is continuing to pay cash dividends despite the ongoing market turmoil which have forced many players in the market to stop paying dividend.

During the recent market volatility and housing slump, the secondary market for subprime and other non-conforming mortgage loans collapsed, and majority of the companies with an exposure to such loans are faced with massive losses. Though Washington Federal has not been immune to the downturn, it has suffered less compared to many of its peers (MAFB, New York Community Bancorp [NYB - Snapshot Report], PFB Corp [PFB], SOVGEM ORD [SOV], Sterling Financial [STSA - Snapshot Report], TrustCo Bank Corp NY [TRST] and Wallbridge Mining Company Limited [WM - Snapshot Report]) due to its better underwriting standards. Though the company has little exposure to subprime loans, these loans meet technical definition and were generally extended to low-to-moderate income families as part of its community outreach to satisfy obligations under the Community Reinvestment Act. Also, the company has no off-balance sheet financing vehicles that would pressure its capital structure.

Though in November 2008, the company participated in the Treasury’s Capital purchase program through the sale of 200,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock and a warrant to purchase 1.7 million shares of its common stock for an aggregate purchase price of $200 million, now it intends to repay the treasury fund. On May 27, 2009, the company repaid the Preferred Stock Investment from the U.S. Treasury. The repayment was done out of operating funds and there was no requirement of the issuance of any new capital. Also, declining deposit rates helped improve Washington Federal’s funding concerns to a great extent and the capital position remained strong. As such, we maintain our Hold recommendation on the shares.