Preferred Bank (NASDAQ:PFBC) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Preferred Bank (NASDAQ:PFBC) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 6th of October in order to be eligible for this dividend, which will be paid on the 21st of October.

Preferred Bank's next dividend payment will be US$0.30 per share. Last year, in total, the company distributed US$1.20 to shareholders. Based on the last year's worth of payments, Preferred Bank stock has a trailing yield of around 3.7% on the current share price of $32.12. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Preferred Bank has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Preferred Bank

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Preferred Bank's payout ratio is modest, at just 25% of profit.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Preferred Bank's earnings have been skyrocketing, up 21% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past six years, Preferred Bank has increased its dividend at approximately 20% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Preferred Bank? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Preferred Bank ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

In light of that, while Preferred Bank has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for Preferred Bank (of which 1 is potentially serious!) you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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. 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.

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