Here's Why We're Wary Of Buying Hope Bancorp's (NASDAQ:HOPE) For Its Upcoming Dividend

By
Simply Wall St
Published
May 02, 2021
NasdaqGS:HOPE

Hope Bancorp, Inc. (NASDAQ:HOPE) stock is about to trade ex-dividend in 3 days. This means that investors who purchase shares on or after the 6th of May will not receive the dividend, which will be paid on the 21st of May.

Hope Bancorp's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.56 per share to shareholders. Based on the last year's worth of payments, Hope Bancorp stock has a trailing yield of around 3.7% on the current share price of $15.01. If you buy this business for its dividend, you should have an idea of whether Hope Bancorp's dividend is reliable and sustainable. So we need to investigate whether Hope Bancorp can afford its dividend, and if the dividend could grow.

See our latest analysis for Hope Bancorp

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Hope Bancorp paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies.

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.

historic-dividend
NasdaqGS:HOPE Historic Dividend May 2nd 2021

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hope Bancorp's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Hope Bancorp has lifted its dividend by approximately 12% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Hope Bancorp? Hope Bancorp's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that in mind though, if the poor dividend characteristics of Hope Bancorp don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Hope Bancorp and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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