Are You Looking for a High-Growth Dividend Stock?

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Prosperity Bancshares in Focus

Based in Houston, Prosperity Bancshares (PB) is in the Finance sector, and so far this year, shares have seen a price change of -5.71%. The financial holding company is currently shelling out a dividend of $0.56 per share, with a dividend yield of 3.51%. This compares to the Banks - Southwest industry's yield of 0.76% and the S&P 500's yield of 1.58%.

Looking at dividend growth, the company's current annualized dividend of $2.24 is up 1.4% 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 6.44%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.

PB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $5 per share, representing a year-over-year earnings growth rate of 0.60%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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