Prosperity Bancshares Is Buying Banks and Raising Dividends. Can It Afford Both?

Prosperity Bancshares (NYSE:PB | PB Price Prediction) raised its payout again today. Prosperity Bancshares announced a 6.7% increase, setting the new quarterly dividend at $0.64 per share. The raise comes from a Texas bank that closed three acquisitions in seven months, signaling management’s confidence in its balance sheet.

A Payout That Keeps Climbing

The quarterly dividend rose from $0.56 in 2024 to $0.58, then to $0.60, and payments date back to 1999. When the company announced last year’s raise, the CEO at the time called it the 22nd straight annual increase:

“The increase reflects the continued confidence the Board has in our company and our markets. The compound annual growth rate in dividends declared from 2003 to 2025 was 10.7%.”

With the stock at $68.29, the new rate works out to a forward yield of about 3.7%.

Earnings Cover the Check Comfortably

Second-quarter adjusted EPS came in at $1.62, beating the $1.55 consensus. The new dividend uses roughly 40% of that quarter’s earnings. Over the trailing 12 months, dividends of $2.40 amounted to about 42% of 2025 EPS of $5.72. Net income rose 24.73% to $168.58 million. Net interest margin, the spread a bank earns between what it collects on loans and what it pays on deposits, widened 29 bps to 3.47%.

Capital and Deposits Back the Raise

At June 30, shareholders’ equity stood at $8.29 billion against $43.89 billion in assets. Acquisition goodwill and intangibles can’t absorb losses, so a stricter test removes them. On that basis, tangible equity was about 10.9% of tangible assets. The bank also bought back $70.8 million of stock in the first half.

The Stellar deal added $8.7B in deposits and $7.5B in loans. Management explained why that funding matters:

“Stellar Bancorp is a well-run bank with similar credit discipline and an enviable noninterest-bearing deposit mix. It has scarcity value, a quality balance sheet and earnings power.”

How the Raise Compares With Regional Rivals

Zions Bancorporation (NASDAQ:ZION) raised its dividend to $0.48 from $0.45, up about 6.7% and matching the raise Prosperity Bancshares announced. Its margin slipped to 3.23%. Cullen/Frost Bankers (NYSE:CFR) raised its payout by 3.0% and earns a stronger 3.75% margin. Frost also says its strategy depends on building branches itself. Its CEO said:

“Our strategy is consistent, and our results speak for themselves.”

Prosperity takes the opposite path, growing by buying banks. That is why integration and credit carry more weight in its story.

One Risk Worth Tracking

Credit is the main threat to the payout. First-quarter net charge-offs jumped to $41.3M, with $33.8M coming from commercial and industrial loans. Charge-offs fell back to $2.2M in the second quarter. Nonperforming assets still rose to $130.6M from $110.5M a year earlier. None of the classic warning signs we flag in a free guide to dividend traps are flashing here, but commercial credit is the line to watch.

Verdict: The Dividend Looks Sustainable

Prosperity is expected to report quarterly earnings next week. That will be the first full quarter that includes Stellar so that the results could change this picture. Watch charge-offs and deposit retention. Even so, a payout ratio near 40%, tangible equity close to 11% of tangible assets, and a widening margin give the bank plenty of buffer. Unless commercial loan losses climb back toward first-quarter levels, the $0.64 dividend Prosperity Bancshares announced looks well covered.

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