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Why Prosperity Bancshares (PB) is a Top Dividend Stock for Your Portfolio

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Prosperity Bancshares in Focus

Based in Houston, Prosperity Bancshares (PB) is in the Finance sector, and so far this year, shares have seen a price change of 1.05%. Currently paying a dividend of $0.52 per share, the company has a dividend yield of 2.85%. In comparison, the Banks - Southwest industry's yield is 1.35%, while the S&P 500's yield is 1.53%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.08 is up 4.5% from last year. Prosperity Bancshares has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.08%. 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. Prosperity Bancshares's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.

PB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $5.66 per share, which represents a year-over-year growth rate of 1.07%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PB is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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