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This is Why Preferred Bank (PFBC) is a Great Dividend Stock

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Preferred Bank in Focus

Based in Los Angeles, Preferred Bank (PFBC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 21.18%. The independent commercial bank is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.49%. This compares to the Banks - West industry's yield of 1.78% and the S&P 500's yield of 1.35%.

In terms of dividend growth, the company's current annualized dividend of $1.52 is up 26.7% from last year. In the past five-year period, Preferred Bank has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.45%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Preferred Bank's current payout ratio is 24%, meaning it paid out 24% 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 $6 per share, representing a year-over-year earnings growth rate of 29.03%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, PFBC 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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