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In an effort to share more profit with its shareholders, Texas-based Prosperity Bancshares Inc. (PB - Analyst Report) announced a 10.3% hike in its quarterly cash dividend to 21.5 cents per share. The new dividend will be paid on December 31, 2012 to the shareholders of record as of December 14, 2012.

The dividend hike is supported by Prosperity’s strong balance sheet along with its ability to generate significant cash flows. For the recently closed quarter, Prosperity reported earnings of 82 cents per share, a couple of cents ahead of the Zacks Consensus Estimate and 6.5% higher than the year-ago quarter. Results were boosted by an improved top line, better asset quality along with a healthy balance sheet.
 
As of September 30, 2012, tier 1 risk-based capital ratio was 14.43% compared with 16.42% as of June 30, 2012 and 15.47% as of September 30, 2011. Total risk-based capital ratio came in at 15.26% as against 17.49% in the prior quarter and 16.69% in the prior-year quarter. As of September 30, 2012, cash and due from banks was $207.7 million.
 
This hike in dividend reflects Prosperity’s commitment to provide value to its shareholders. Through this dividend payout, the company will also be able to attract investors, who are increasingly searching for high-quality dividend paying stocks in an effort to boost their income, thereby enhancing investors’ confidence in the stock. 
 
Earlier this week, in the same sector, Franklin Resources Inc. (BEN - Analyst Report) enhanced its quarterly common stock dividend by 7% to 29 cents per share. The dividend will be paid on December 31, 2012 to shareholders of record as of December 14, 2012.
 
Prosperity currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We believe that the news of the dividend hike may encourage analysts to raise their estimates, providing an upward pressure on Prosperity’s Zacks Rank.

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