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Why Preferred Bank (PFBC) is a Great Dividend Stock Right Now

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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. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Preferred Bank in Focus

Preferred Bank (PFBC - Free Report) is headquartered in Los Angeles, and is in the Finance sector. The stock has seen a price change of 8.55% since the start of the year. The independent commercial bank is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 2.21% compared to the Banks - West industry's yield of 2.14% and the S&P 500's yield of 1.45%.

In terms of dividend growth, the company's current annualized dividend of $1.72 is up 19.4% from last year. Preferred Bank has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 16.29%. 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 24%. This means it paid out 24% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PFBC for this fiscal year. The Zacks Consensus Estimate for 2022 is $7.14 per share, which represents a year-over-year growth rate of 11.39%.

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. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PFBC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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