Today we’ll take a closer look at RBB Bancorp (NASDAQ:RBB) from a dividend investor’s perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it’s important to be a lot more stringent with your investments than the average punter.
With only a two-year payment history, and a 2.9% yield, investors probably think RBB Bancorp is not much of a dividend stock. While it may not look like much, if earnings are growing it could become quite interesting. There are a few simple ways to reduce the risks of buying RBB Bancorp for its dividend, and we’ll go through these below.
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. In the last year, RBB Bancorp paid out 21% of its profit as dividends. We’d say its dividends are thoroughly covered by earnings.
Consider getting our latest analysis on RBB Bancorp’s financial position here.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. 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$0.32 in 2018, compared to US$0.48 last year. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time.
We’re not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. It’s good to see RBB Bancorp has been growing its earnings per share at 19% a year over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
To summarise, shareholders should always check that RBB Bancorp’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that RBB Bancorp has a low and conservative payout ratio. We were also glad to see it growing earnings, although its dividend history is not as long as we’d like. RBB Bancorp has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 RBB Bancorp analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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