This is Why Preferred Bank (PFBC) is a Great Dividend Stock
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Preferred Bank in Focus
Headquartered in Los Angeles, Preferred Bank (PFBC) is a Finance stock that has seen a price change of 16.86% so far this year. The independent commercial bank is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.58%. This compares to the Banks - West industry's yield of 1.8% and the S&P 500's yield of 1.38%.
Looking at dividend growth, the company's current annualized dividend of $1.52 is up 26.7% from last year. Over the last 5 years, Preferred Bank has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.45%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Preferred Bank's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PFBC expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $6.03 per share, which represents a year-over-year growth rate of 29.68%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PFBC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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