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This is Why Prosperity Bancshares (PB) is a Great Dividend Stock

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 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.

Prosperity Bancshares in Focus

Prosperity Bancshares (PB) is headquartered in Houston, and is in the Finance sector. The stock has seen a price change of 2.3% since the start of the year. The financial holding company is currently shelling out a dividend of $0.52 per share, with a dividend yield of 2.81%. This compares to the Banks - Southwest industry's yield of 1.36% and the S&P 500's yield of 1.6%.

Looking at dividend growth, the company's current annualized dividend of $2.08 is up 4.5% from last year. In the past five-year period, Prosperity Bancshares has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.78%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Prosperity Bancshares's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PB expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $5.75 per share, which represents a year-over-year growth rate of 2.68%.

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.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PB 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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