PacWest Bancorp's (NASDAQ:PACW) investors are due to receive a payment of $0.25 per share on 31st of August. This means the dividend yield will be fairly typical at 3.6%.
PacWest Bancorp's Payment Expected To Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time.
PacWest Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. While past data isn't a guarantee for the future, PacWest Bancorp's latest earnings report puts its payout ratio at 23%, showing that the company can pay out its dividends comfortably.
Over the next year, EPS is forecast to expand by 4.8%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 20% by next year, which is in a pretty sustainable range.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from $0.04 total annually to $1.00. This works out to be a compound annual growth rate (CAGR) of approximately 38% a year over that time. PacWest Bancorp has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
We Could See PacWest Bancorp's Dividend Growing
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. PacWest Bancorp has impressed us by growing EPS at 8.3% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
PacWest Bancorp Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for PacWest Bancorp that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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