All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
First Merchants in Focus
Headquartered in Muncie, First Merchants (FRME - Free Report) is a Finance stock that has seen a price change of 2.36% so far this year. The bank is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 2.99% compared to the Banks - Midwest industry's yield of 2.97% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.28 is up 13.3% from last year. Over the last 5 years, First Merchants has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.76%. 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 Merchants's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FRME expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.89 per share, which represents a year-over-year growth rate of 2.10%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FRME is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners Up
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
First Merchants in Focus
Headquartered in Muncie, First Merchants (FRME - Free Report) is a Finance stock that has seen a price change of 2.36% so far this year. The bank is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 2.99% compared to the Banks - Midwest industry's yield of 2.97% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.28 is up 13.3% from last year. Over the last 5 years, First Merchants has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.76%. 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 Merchants's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FRME expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.89 per share, which represents a year-over-year growth rate of 2.10%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FRME is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners Up
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