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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
Preferred Bank in Focus
Headquartered in Los Angeles, Preferred Bank (PFBC) is a Finance stock that has seen a price change of 33.31% so far this year. Currently paying a dividend of $0.38 per share, the company has a dividend yield of 2.26%. In comparison, the Banks - West industry's yield is 1.86%, while the S&P 500's yield is 1.25%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.52 is up 26.7% from last year. Over the last 5 years, Preferred Bank has increased its dividend 3 times on a year-over-year basis for an average annual increase of 18.55%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Preferred Bank's current payout ratio is 26%. This means it paid out 26% of its trailing 12-month EPS as dividend.
PFBC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $5.91 per share, with earnings expected to increase 27.10% from the year ago period.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful 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 PFBC 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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Preferred Bank (PFBC) : Free Stock Analysis Report
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