Preferred Bank (NASDAQ:PFBC) Will Pay A Larger Dividend Than Last Year At $0.55

Preferred Bank (NASDAQ:PFBC) has announced that it will be increasing its periodic dividend on the 20th of January to $0.55, which will be 28% higher than last year's comparable payment amount of $0.43. This takes the annual payment to 2.4% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Preferred Bank

Preferred Bank's Dividend Forecasted To Be Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Preferred Bank has established itself as a dividend paying company, given its 8-year history of distributing earnings to shareholders. While past records don't necessarily translate into future results, the company's payout ratio of 22% also shows that Preferred Bank is able to comfortably pay dividends.

Over the next 3 years, EPS is forecast to expand by 12.3%. Analysts forecast the future payout ratio could be 22% over the same time horizon, which is a number we think the company can maintain.

Preferred Bank Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2014, the annual payment back then was $0.40, compared to the most recent full-year payment of $1.72. This means that it has been growing its distributions at 20% per annum over that time. Preferred Bank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Preferred Bank has seen EPS rising for the last five years, at 21% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Preferred Bank Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Preferred Bank that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.