There is a lot to be liked about Westamerica Bancorporation (NASDAQ:WABC) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 2.6%, and has a market cap of US$1.7b. Does Westamerica Bancorporation tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does Westamerica Bancorporation fit our criteria?
The company currently pays out 60% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect WABC’s payout to fall to 52% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.6%. However, EPS should increase to $2.96, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. WABC has increased its DPS from $1.44 to $1.6 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes WABC a true dividend rockstar.
Relative to peers, Westamerica Bancorporation has a yield of 2.6%, which is on the low-side for Banks stocks.
Taking into account the dividend metrics, Westamerica Bancorporation ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for WABC’s future growth? Take a look at our free research report of analyst consensus for WABC’s outlook.
- Valuation: What is WABC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WABC is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.