Prosperity Bancshares (PB) is a Top Dividend Stock Right Now: Should You Buy?

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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

Headquartered in Houston, Prosperity Bancshares (PB) is a Finance stock that has seen a price change of -2.03% so far this year. Currently paying a dividend of $0.52 per share, the company has a dividend yield of 2.94%. In comparison, the Banks - Southwest industry's yield is 1.4%, while the S&P 500's yield is 1.51%.

In terms of dividend growth, the company's current annualized dividend of $2.08 is up 4.5% from last year. Prosperity Bancshares has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.08%. 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. Prosperity Bancshares's current payout ratio is 38%. This means 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 $5.62 per share, representing a year-over-year earnings growth rate of 0.36%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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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