East West Bancorp, Inc. (NASDAQ:EWBC) stock is about to trade ex-dividend in 2 days time. This means that investors who purchase shares on or after the 31st of January will not receive the dividend, which will be paid on the 14th of February.
East West Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.10 to shareholders. Looking at the last 12 months of distributions, East West Bancorp has a trailing yield of approximately 2.3% on its current stock price of $47.41. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. East West Bancorp paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see East West Bancorp's earnings per share have risen 17% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, East West Bancorp has increased its dividend at approximately 39% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has East West Bancorp got what it takes to maintain its dividend payments? Companies like East West Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating East West Bancorp more closely.
Curious what other investors think of East West Bancorp? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
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