Prosperity Bancshares (NYSE:PB) Will Pay A Larger Dividend Than Last Year At $0.60

The board of Prosperity Bancshares, Inc. (NYSE:PB) has announced that it will be increasing its dividend by 3.4% on the 2nd of January to $0.60, up from last year's comparable payment of $0.58. This takes the annual payment to 3.3% of the current stock price, which is about average for the industry.

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Prosperity Bancshares' Dividend Forecasted To Be Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, Prosperity Bancshares has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Prosperity Bancshares' payout ratio of 41% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 29.8% over the next 3 years. Analysts forecast the future payout ratio could be 36% over the same time horizon, which is a number we think the company can maintain.

See our latest analysis for Prosperity Bancshares

Prosperity Bancshares Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.09 total annually to $2.32. This means that it has been growing its distributions at 7.8% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, Prosperity Bancshares' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Prosperity Bancshares is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

We Really Like Prosperity Bancshares' Dividend

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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.