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Why First Midwest Bancorp (FMBI) is a Great Dividend Stock Right Now

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

First Midwest Bancorp in Focus

Based in Chicago, First Midwest Bancorp is in the Finance sector, and so far this year, shares have seen a price change of 5.35%. The holding company for First Midwest Bank is currently shelling out a dividend of $0.12 per share, with a dividend yield of 2.3%. This compares to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.94%.

In terms of dividend growth, the company's current annualized dividend of $0.48 is up 6.7% from last year. Over the last 5 years, First Midwest Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 8.26%. 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. Right now, First Midwest Bancorp's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, FMBI expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.96 per share, with earnings expected to increase 17.37% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FMBI 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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