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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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
Based in Los Angeles, Preferred Bank (PFBC) is in the Finance sector, and so far this year, shares have seen a price change of 34.89%. The independent commercial bank is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.23%. This compares to the Banks - West industry's yield of 1.72% and the S&P 500's yield of 1.3%.
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 3 times on a year-over-year basis for an average annual increase of 18.55%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Preferred Bank's payout ratio is 24%, which means it paid out 24% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PFBC for this fiscal year. The Zacks Consensus Estimate for 2021 is $6.03 per share, representing a year-over-year earnings growth rate of 29.68%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that PFBC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Preferred Bank (PFBC) : Free Stock Analysis Report
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