Is Pacific Premier Bancorp, Inc.'s (NASDAQ:PPBI) 4.1% Dividend Sustainable?

By
Simply Wall St
Published
October 22, 2020
NasdaqGS:PPBI

Is Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

In this case, Pacific Premier Bancorp pays a decent-sized 4.1% dividend yield, and has been distributing cash to shareholders for the past two years. A 4.1% yield does look good. Could the short payment history hint at future dividend growth? The company also returned around 1.4% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on Pacific Premier Bancorp!

historic-dividend
NasdaqGS:PPBI Historic Dividend October 22nd 2020

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 759% of Pacific Premier Bancorp's profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

Consider getting our latest analysis on Pacific Premier Bancorp's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The company has been paying a stable dividend for a few years now, but we'd like to see more evidence of consistency over a longer period. During the past two-year period, the first annual payment was US$0.9 in 2018, compared to US$1.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time.

Pacific Premier Bancorp has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Pacific Premier Bancorp's EPS have fallen by approximately 33% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Pacific Premier Bancorp's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Pacific Premier Bancorp's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with its high payout ratio. Earnings per share are down, and to our mind Pacific Premier Bancorp has not been paying a dividend long enough to demonstrate its resilience across economic cycles. In short, we're not keen on Pacific Premier Bancorp from a dividend perspective. Businesses can change, but we've spotted a few too many concerns with this one to get comfortable.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Pacific Premier Bancorp (of which 1 is potentially serious!) you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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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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