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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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

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 7.86% 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 2.22% compared to the Banks - West industry's yield of 2.23% and the S&P 500's yield of 1.45%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.72 is up 19.4% from last year. Over the last 5 years, Preferred Bank has increased its dividend 4 times on a year-over-year basis 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 $7.15 per share, which represents a year-over-year growth rate of 11.54%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 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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