Attention dividend hunters! Prosperity Bancshares, Inc. (NYSE:PB) will be distributing its dividend of US$0.41 per share on the 01 April 2019, and will start trading ex-dividend in 4 days time on the 14 March 2019. What does this mean for current shareholders and potential investors? Below, I will explain how holding Prosperity Bancshares can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Prosperity Bancshares fare?
Prosperity Bancshares has a trailing twelve-month payout ratio of 32%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 36% which, assuming the share price stays the same, leads to a dividend yield of around 2.4%. Moreover, EPS should increase to $4.83.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. In the case of PB it has increased its DPS from $0.55 to $1.64 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Prosperity Bancshares generates a yield of 2.3%, which is on the low-side for Banks stocks.
Keeping in mind the dividend characteristics above, Prosperity Bancshares is definitely worth considering for investors looking to build a dedicated income portfolio. 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. There are three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for PB’s future growth? Take a look at our free research report of analyst consensus for PB’s outlook.
- Valuation: What is PB 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 PB 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.