Readers hoping to buy Prudential Bancorp, Inc. (NASDAQ:PBIP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 5th of September, you won't be eligible to receive this dividend, when it is paid on the 20th of September.
Prudential Bancorp's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Looking at the last 12 months of distributions, Prudential Bancorp has a trailing yield of approximately 1.2% on its current stock price of $16.18. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Prudential Bancorp paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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?
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Prudential Bancorp's earnings have been skyrocketing, up 41% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Prudential Bancorp's dividend payments are effectively flat on where they were ten years ago.
From a dividend perspective, should investors buy or avoid Prudential Bancorp? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Prudential Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Keen to explore more data on Prudential Bancorp's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.