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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Prosperity Bancshares, Inc. (NYSE:PB) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 14th of December will not receive this dividend, which will be paid on the 4th of January.
Prosperity Bancshares's next dividend payment will be US$0.49 per share, and in the last 12 months, the company paid a total of US$1.96 per share. Looking at the last 12 months of distributions, Prosperity Bancshares has a trailing yield of approximately 3.0% on its current stock price of $66.29. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Prosperity Bancshares has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Prosperity Bancshares paying out a modest 35% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Prosperity Bancshares earnings per share are up 3.9% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Prosperity Bancshares has lifted its dividend by approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Prosperity Bancshares? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Prosperity Bancshares 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.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 3 warning signs we've spotted with Prosperity Bancshares (including 1 which doesn't sit too well with us).
If you're in the market for dividend stocks, we recommend checking our list of top 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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