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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) has begun paying dividends recently. It now yields 2.9%. Should it have a place in your portfolio? Let’s take a look at Pacific Premier Bancorp in more detail.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How well does Pacific Premier Bancorp fit our criteria?
The company currently pays out 9.6% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect PPBI’s payout to increase to 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%. In addition to this, EPS should increase to $2.63. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Pacific Premier Bancorp as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether PPBI one as a stable dividend player.
In terms of its peers, Pacific Premier Bancorp produces a yield of 2.9%, which is high for Banks stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about Pacific Premier Bancorp from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for PPBI’s future growth? Take a look at our free research report of analyst consensus for PPBI’s outlook.
- Valuation: What is PPBI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PPBI is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.