There is a lot to be liked about Westamerica Bancorporation (NASDAQ:WABC) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 2.6%, and has a market cap of US$1.7b. Should it have a place in your portfolio? Let’s take a look at Westamerica Bancorporation in more detail.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Westamerica Bancorporation fare?
Westamerica Bancorporation has a trailing twelve-month payout ratio of 60%, which means that the dividend is covered by earnings. However, going forward, analysts expect WABC’s payout to fall to 53% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.6%. However, EPS should increase to $2.95, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. WABC has increased its DPS from $1.44 to $1.6 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes WABC a true dividend rockstar.
Relative to peers, Westamerica Bancorporation produces a yield of 2.6%, which is on the low-side for Banks stocks.
Taking into account the dividend metrics, Westamerica Bancorporation ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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. I’ve put together three important factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for WABC’s future growth? Take a look at our free research report of analyst consensus for WABC’s outlook.
- Valuation: What is WABC 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 WABC is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.