Prosperity Bancshares' (NYSE:PB) Dividend Will Be Increased To $0.58

Prosperity Bancshares, Inc. (NYSE:PB) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of January to $0.58. This makes the dividend yield about the same as the industry average at 3.2%.

Check out our latest analysis for Prosperity Bancshares

Prosperity Bancshares' Payment Expected To Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, Prosperity Bancshares has a long history of paying out a part of its earnings to shareholders. Based on Prosperity Bancshares' last earnings report, the payout ratio is at a decent 49%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to expand by 39.9%. Analysts estimate the future payout ratio will be 38% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Prosperity Bancshares Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.96 in 2014 to the most recent total annual payment of $2.32. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Prosperity Bancshares May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Although it's important to note that Prosperity Bancshares' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Prosperity Bancshares' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 14 analysts we track are forecasting for the future. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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