Don't Race Out To Buy Hope Bancorp, Inc. (NASDAQ:HOPE) Just Because It's Going Ex-Dividend

It looks like Hope Bancorp, Inc. (NASDAQ:HOPE) is about to go ex-dividend in the next four days. Investors can purchase shares before the 29th of October in order to be eligible for this dividend, which will be paid on the 13th of November.

Hope Bancorp's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.56 to shareholders. Based on the last year's worth of payments, Hope Bancorp stock has a trailing yield of around 6.5% on the current share price of $8.645. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hope Bancorp can afford its dividend, and if the dividend could grow.

See our latest analysis for Hope Bancorp

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Hope Bancorp paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hope Bancorp's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, eight years ago, Hope Bancorp has lifted its dividend by approximately 14% a year on average.

To Sum It Up

Should investors buy Hope Bancorp for the upcoming dividend? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. Hope Bancorp doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Hope Bancorp don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 1 warning sign for Hope Bancorp and you should be aware of this before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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