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It looks like Prudential Bancorp, Inc. (NASDAQ:PBIP) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 4th of September to receive the dividend, which will be paid on the 22nd of September.
Prudential Bancorp's next dividend payment will be US$0.07 per share, on the back of last year when the company paid a total of US$0.28 to shareholders. Last year's total dividend payments show that Prudential Bancorp has a trailing yield of 2.6% on the current share price of $10.8. If you buy this business for its dividend, you should have an idea of whether Prudential Bancorp's dividend is reliable and sustainable. So we need to investigate whether Prudential Bancorp can afford its dividend, and if the dividend could grow.
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. Prudential Bancorp is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Prudential Bancorp has grown its earnings rapidly, up 47% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Prudential Bancorp has delivered an average of 3.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
From a dividend perspective, should investors buy or avoid Prudential Bancorp? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Prudential Bancorp more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Prudential Bancorp you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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