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Readers hoping to buy PacWest Bancorp (NASDAQ:PACW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 14th of May in order to be eligible for this dividend, which will be paid on the 28th of May.
PacWest Bancorp's upcoming dividend is US$0.25 a share, following on from the last 12 months, when the company distributed a total of US$1.00 per share to shareholders. Based on the last year's worth of payments, PacWest Bancorp stock has a trailing yield of around 2.2% on the current share price of $45.07. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
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. PacWest Bancorp paid out a comfortable 34% of its profit last year.
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?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that PacWest Bancorp's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PacWest Bancorp has delivered 38% dividend growth per year on average over the past 10 years.
To Sum It Up
Has PacWest Bancorp got what it takes to maintain its dividend payments? PacWest Bancorp has seen its earnings per share stagnate in recent years, although the company reinvests more than half of its profits in the business, which could bode well for its future prospects. We think this is a pretty attractive combination, and would be interested in investigating PacWest Bancorp more closely.
In light of that, while PacWest Bancorp has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for PacWest Bancorp and you should be aware of them before buying any shares.
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.
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. 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.
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