Is It Smart To Buy East West Bancorp, Inc. (NASDAQ:EWBC) Before It Goes Ex-Dividend?

It looks like East West Bancorp, Inc. (NASDAQ:EWBC) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 1st of May, you won't be eligible to receive this dividend, when it is paid on the 15th of May.

East West Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.10 to shareholders. Last year's total dividend payments show that East West Bancorp has a trailing yield of 3.6% on the current share price of $30.37. If you buy this business for its dividend, you should have an idea of whether East West Bancorp's dividend is reliable and sustainable. So we need to investigate whether East West Bancorp can afford its dividend, and if the dividend could grow.

See our latest analysis for East West Bancorp

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. East West Bancorp paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, East West Bancorp's earnings per share have been growing at 13% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, East West Bancorp has increased its dividend at approximately 39% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy East West Bancorp for the upcoming dividend? Companies like East West Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating East West Bancorp more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for East West Bancorp that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.