Board of Prosperity Bankshares, Inc. (NYSE:PB) announced that the dividend will be increased to $0.60 on Jan. 2, which would be 3.4% higher than last year’s payout of $0.58 that covered the same period. Based on this payout, the dividend yield for the company would be 3.3%, which is typical for the industry.
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We are not overly impressed with dividend yields unless they are sustainable over time.
Samriddhi Bancshares has been established as a dividend paying company with more than 10 years of history of distributing income to shareholders. Past distributions don’t guarantee future ones, but Samriddhi Bancshares’ payout ratio of 41% is a good sign because it means earnings cover dividends well.
EPS is projected to expand by 29.8 percent in the next 3 years. Analysts estimate the future payout ratio could be 36% over the same time horizon, which is a number the company can sustain.
Check out our latest analysis for Samriddhi Bankshares
The company has an extended history of consistent dividend payments. The annual payout over the last 10 years was $1.09 in 2015, and the most recent fiscal year payout was $2.32. This means that its distribution is growing at 7.8% per year during that time. Dividends have grown at a reasonable rate over this period, and with no major reductions in payouts over time, we think this is an attractive combination as it provides good growth in shareholder returns.
Some investors are chomping at the bit to buy some of the company’s stock based on its dividend history. Unfortunately, Samriddhi Bankshare’s earnings per share have been essentially flat over the past five years, which means the dividend may not increase every year. The company is growing at a fairly modest 1.4% per year, and is paying out most of its earnings to shareholders. While this is not necessarily negative, it certainly indicates that dividend growth may be limited in the future until earnings begin to pick up again.
In summary, seeing this dividend increase is always positive, and we are particularly pleased with its overall sustainability. Distributions are easily covered by earnings, which are also being converted into cash flow. With all this in mind, it looks like it could be a good dividend opportunity.
