Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) is about to go ex-dividend in just 2 days. This means that investors who purchase shares on or after the 5th of November will not receive the dividend, which will be paid on the 13th of November.
Pacific Premier Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Last year's total dividend payments show that Pacific Premier Bancorp has a trailing yield of 4.4% on the current share price of $25.5. If you buy this business for its dividend, you should have an idea of whether Pacific Premier Bancorp's dividend is reliable and sustainable. As a result, readers should always check whether Pacific Premier Bancorp has been able to grow its dividends, or if the dividend might be cut.
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. An unusually high payout ratio of 222% of its profit suggests something is happening other than the usual distribution of profits to shareholders.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Pacific Premier Bancorp's earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past two years, Pacific Premier Bancorp has increased its dividend at approximately 13% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Pacific Premier Bancorp is already paying out 222% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
From a dividend perspective, should investors buy or avoid Pacific Premier Bancorp? Earnings per share are in decline and Pacific Premier Bancorp is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Pacific Premier Bancorp doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Although, if you're still interested in Pacific Premier Bancorp and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 5 warning signs with Pacific Premier Bancorp (at least 1 which is significant), and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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