Last update on 2024-06-27

East West Bancorp (EWBC) - Dividend Analysis (Final Score: 4/8)

East West Bancorp (EWBC) has a 4/8 dividend score based on an 8-criteria analysis system. Explore detailed insights into EWBC's dividend stability and performance.

Short Analysis - Dividend Score: 4

We're running East West Bancorp (EWBC) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis uses 8 criteria to evaluate the performance and stability of East West Bancorp's (EWBC) dividend policy. The overall dividend score is 4 out of 8. Key highlights include: 1. The dividend yield of 2.6685% is below the industry average of 3.24%, though showing positive momentum in recent years. 2. The average annual dividend growth rate is approximately 31.73%, well above the 5% threshold, but highly volatile. 3. The payout ratio over the past 20 years has averaged 15.50%, which is very conservative and indicates financial prudence. 4. Dividend coverage by earnings has improved in recent years, with a healthier coverage ratio above 0.20 since 2018. 5. Dividend coverage by cash flow needs to be assessed, as it's a crucial indicator of sustainability. 6. The company has relatively stable dividends, with modest growth in recent years. 7. Dividends have been paid consistently for 26 years, demonstrating long-term commitment and stability. 8. Share repurchase activities have been inconsistent but show a positive trend since 2019.

Insights for Value Investors Seeking Stable Income

Given the mixed results, East West Bancorp (EWBC) shows both strengths and weaknesses in its dividend policy. Its low payout ratio and the consistent payment history are strong positives. However, the dividend yield below the industry average and the volatility in growth needs caution. If you're looking for a stable and growing dividend stock, EWBC may be worth considering, but it's essential to be mindful of the potential risks and keep an eye on how the company addresses cash flow coverage and maintains its repurchase activities.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. A higher dividend yield can indicate that a company is willing to share its profits with shareholders. It is important as it provides insight into the company’s ability to return profits to shareholders.

East West Bancorp's current dividend yield of 2.6685% is lower than the industry average of 3.24%. Over the past 20 years, the company’s dividend yield has seen significant fluctuations, starting from as low as 0.2046% during the financial crisis in 2010, to a high of 2.6685% in 2023. Comparatively, the industry average has also seen volatility, with exceedingly high numbers in 2006 and 2007, reflective of broader economic factors. The upward trend in East West Bancorp's dividend yield in recent years, culminating in the current figure, indicates a strong willingness to return more value to shareholders. However, the fact that the yield is still below the industry average is a negative flag, suggesting that while the company is improving, it faces competition from peers offering better yields. Combined with a stock price that has grown substantially, especially in recent years, and consistent increases in dividends per share, it shows an overall positive momentum in shareholder returns but highlights the need for caution as it tries to catch up with industry standards.

Average annual Growth Rate higher than 5% in the last 20 years?

This evaluates if the annual percentage growth rate of the dividend is greater than 5%, which indicates strong and consistent dividend increases, providing a gauge of the company's potential for income generation.

Over the past 20 years, East West Bancorp (EWBC) exhibits significant volatility in its dividend growth rate. Notable values include exceptionally high growth rates in years such as 2007 (100%) and 2011 (300%) and noticeable declines, particularly severe in 2009 (-87.5%) and 2010 (-20%). However, many years show no growth at all (e.g., 2004, 2016), while others have modest increases. Importantly, the average dividend growth rate stands at approximately 31.73%, well above the 5% threshold. This high average indicates potential robust dividend capability despite the volatility, which could appeal to investors seeking growth in dividend income. Nevertheless, the inconsistency and occasional negative growth reflect volatility, which could be seen as a risk factor by dividend-focused investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio shows the proportion of earnings paid out as dividends to shareholders, usually expressed as a percentage. A lower payout ratio suggests the company retains a greater portion of profits for growth and stability.

East West Bancorp has maintained an average payout ratio of 15.50% over the past 20 years. This figure is significantly lower than the 65% benchmark, indicating that EWBC retains a sizable portion of its earnings to reinvest in business operations or to serve as a buffer for downturns. Such a conservative payout approach typically signals financial prudence and long-term stability. Notably, even during the challenging financial period of 2008, the company registered a negative payout ratio, denoting a net loss but saving future dividends by retaining earnings. This low payout ratio also allows for dividend sustainability even in less profitable years.

Dividends Well Covered by Earnings?

Dividends covered by earnings refer to the extent to which a company's net income is sufficient to cover its dividend payments. This is important as it indicates the sustainability of the dividend payout.

For East West Bancorp (EWBC), the trend of earnings per share (EPS) and dividends per share (DPS) covered by earnings follows an oscillatory pattern. During the period from 2003 to 2023, the ratio of dividends per share to covered earnings per share varies significantly. In years such as 2008, EPS was negative, leading to a ratio of -0.50, which is highly unsustainable, depicting financial troubles. Conversely, from 2012 onwards, the EPS has shown consistent growth with ratios significantly above the 0.20 mark, except in 2016, where it dipped. More recent years, 2021 and 2022, have shown relatively stronger coverage ratios of 0.214 and 0.200, respectively, which indicates a healthy coverage but still leaves some room for reinvestment and stability. The trend since 2018 can be deemed relatively healthy and suggests a positive trajectory as coverage remains above 0.20, which ensures stability in dividend payouts relative to earnings.

Dividends Well Covered by Cash Flow?

Explain the criterion for East West Bancorp (EWBC) and why it is important to consider

This criterion looks at the extent to which the company's free cash flow (FCF) covers its dividend payouts. It's crucial because it's a measure of sustainability; firms with dividends well-covered by cash flow are less likely to cut their dividends in times of financial stress.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments means that the dividend per share does not experience significant drops.

Examining the dividend per share for East West Bancorp over the past 20 years, it can be observed that the company has maintained relatively stable dividends with some fluctuations. Notably, during the 2008 financial crisis, the dividend dropped from $0.4 in 2007 to $0.05 in 2009. However, since then, there has been a consistent upward trend in dividends with no drops of 20% or more. The intermittent period saw gradual increments, reaching $1.92 per share in 2023 from $0.04 in 2010. This trend indicates strong dividend stability, reassuring income-seeking investors.

Dividends Paid for Over 25 Years?

Analyzing if a company has paid dividends for over 25 years showcases financial stability and a commitment to returning value to shareholders over long periods.

East West Bancorp has paid dividends continuously for 26 years, starting effectively in 1999. The company's journey from paying $0.075 per share in 1999 to $1.92 per share in 2023 reflects robust growth and a steadfast commitment to shareholders. This trend is particularly impressive considering the varied market conditions over the period, including recessions and market booms. This commitment to dividend payments is a strong indicator of financial health and stability, making East West Bancorp an attractive prospect for income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

The criterion evaluates the consistency of a company's stock repurchase strategy over an extended period. Reliable stock repurchases indicate a stable and strategic capital management approach, which can positively impact shareholder value.

Examining East West Bancorp's share numbers over the past 20 years, the company increased its shares substantially between 2003 and 2011, from approximately 49 million to 147 million, indicating significant equity issuance, possibly for capital raising. However, repurchase activities have been observed mainly from 2012 onward, with noticeable repurchase patterns between 2019 and 2023. For instance, in 2023, the share count mildly decreased to approximately 141 million, reflecting a consistent post-2019 repurchase strategy. The average repurchase metric stands at 6.481 years over the past two decades, suggesting that while not annual, the company does engage in repurchasing activities regularly over time. However, the sporadic nature of these buybacks might raise concerns about the reliability of the repurchase program overall. Thus, the trend leans towards being moderately positive, with a cautionary note on its consistency in early years vs. recent times.