Why East West Bancorp (EWBC) is a Great Dividend Stock Right Now
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
East West Bancorp in Focus
Based in Pasadena, East West Bancorp (EWBC) is in the Finance sector, and so far this year, shares have seen a price change of -16.14%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.69%. In comparison, the Banks - West industry's yield is 1.99%, while the S&P 500's yield is 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.10 is up 4.3% from last year. Over the last 5 years, East West Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 6.47%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, East West Bancorp's payout ratio is 23%, which means it paid out 23% of its trailing 12-month EPS as dividend.
EWBC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.74 per share, representing a year-over-year earnings growth rate of 2.82%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that EWBC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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