There is a lot to be liked about Prosperity Bancshares, Inc. (NYSE:PB) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 2.5%, and has a market cap of US$4.6b. Let’s dig deeper into whether Prosperity Bancshares should have a place in your portfolio.
Check out our latest analysis for Prosperity Bancshares
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Prosperity Bancshares fare?
Prosperity Bancshares has a trailing twelve-month payout ratio of 33%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect PB’s payout to remain around the same level at 34% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.5%. In addition to this, EPS should increase to $4.8.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of PB it has increased its DPS from $0.55 to $1.64 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Prosperity Bancshares generates a yield of 2.5%, which is on the low-side for Banks stocks.
Next Steps:
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 relevant aspects you should look at:
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.