The board of PacWest Bancorp (NASDAQ:PACW) has announced that it will pay a dividend of $0.25 per share on the 30th of November. The dividend yield will be 4.2% based on this payment which is still above the industry average.
PacWest Bancorp's Earnings Will Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much.
Having distributed dividends for at least 10 years, PacWest Bancorp has a long history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, PacWest Bancorp's payout ratio sits at 24%, an extremely comfortable number that shows that it can pay its dividend.
EPS is set to fall by 8.7% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 26% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.72 in 2012, and the most recent fiscal year payment was $1.00. This means that it has been growing its distributions at 3.3% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
We Could See PacWest Bancorp's Dividend Growing
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that PacWest Bancorp has grown earnings per share at 7.1% per year over the past five years. PacWest Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Overall, we think PacWest Bancorp is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, PacWest Bancorp has 2 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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