OP Bancorp's (NASDAQ:OPBK) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of OP Bancorp (NASDAQ:OPBK) has announced that it will be increasing its dividend on the 25th of November to US$0.10. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.

Check out our latest analysis for OP Bancorp

OP Bancorp's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, OP Bancorp was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 10.3%. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

OP Bancorp Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2018, the first annual payment was US$0.20, compared to the most recent full-year payment of US$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. OP Bancorp has seen EPS rising for the last five years, at 24% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On OP Bancorp's Dividend

Overall, we always like to see the dividend being raised, but we don't think OP Bancorp will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for OP Bancorp that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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