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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years Opus Bank (NASDAQ:OPB) has paid a dividend to shareholders. Today it yields 2.0%. Should it have a place in your portfolio? Let’s take a look at Opus Bank in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Opus Bank pass our checks?
The current trailing twelve-month payout ratio for the stock is 51%, which means that the dividend is covered by earnings. However, going forward, analysts expect OPB’s payout to fall to 30% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.2%. However, EPS should increase to $1.34, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Opus Bank as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Opus Bank generates a yield of 2.0%, which is on the low-side for Banks stocks.
Whilst there are few things you may like about Opus Bank from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for OPB’s future growth? Take a look at our free research report of analyst consensus for OPB’s outlook.
- Valuation: What is OPB 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 OPB is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.