Prosperity Bancshares' (NYSE:PB) Dividend Will Be Increased To $0.60

Prosperity Bancshares, Inc. (NYSE:PB) has announced that it will be increasing its periodic dividend on the 2nd of January to $0.60, which will be 3.4% higher than last year's comparable payment amount of $0.58. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.

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Prosperity Bancshares' Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Prosperity Bancshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 41%, which means that Prosperity Bancshares would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to expand by 25.5%. Analysts forecast the future payout ratio could be 37% over the same time horizon, which is a number we think the company can maintain.

Check out our latest analysis for Prosperity Bancshares

Prosperity Bancshares Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.09 in 2015, and the most recent fiscal year payment was $2.32. This implies that the company grew its distributions at a yearly rate of about 7.8% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, Prosperity Bancshares' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Prosperity Bancshares Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Prosperity Bancshares that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.