Should You Buy East West Bancorp, Inc. (NASDAQ:EWBC) For Its Upcoming Dividend?
It looks like East West Bancorp, Inc. (NASDAQ:EWBC) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase East West Bancorp's shares on or after the 1st of February will not receive the dividend, which will be paid on the 15th of February.
The company's next dividend payment will be US$0.55 per share, and in the last 12 months, the company paid a total of US$2.20 per share. Looking at the last 12 months of distributions, East West Bancorp has a trailing yield of approximately 3.0% on its current stock price of US$74.28. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for East West Bancorp
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. East West Bancorp paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, East West Bancorp's earnings per share have been growing at 11% a year 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 10 years, East West Bancorp has increased its dividend at approximately 14% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Should investors buy East West Bancorp for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the 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. East West Bancorp 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.
While it's tempting to invest in East West Bancorp for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for East West Bancorp that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
