A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Community West Bancshares (NASDAQ:CWBC) has paid a dividend to shareholders in the last few years. It currently yields 2.0%. Let’s dig deeper into whether Community West Bancshares should have a place in your portfolio.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does Community West Bancshares pass our checks?
The company currently pays out 21% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Community West Bancshares as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Community West Bancshares produces a yield of 2.0%, which is on the low-side for Banks stocks.
Now you know to keep in mind the reason why investors should be careful investing in Community West Bancshares for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CWBC’s future growth? Take a look at our free research report of analyst consensus for CWBC’s outlook.
- Valuation: What is CWBC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CWBC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.