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First Mid-Illinois Bancshares (FMBH) is a Top Dividend Stock Right Now: Should You Buy?

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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 Mid-Illinois Bancshares in Focus

Based in Mattoon, First Mid-Illinois Bancshares (FMBH - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 6.03%. Currently paying a dividend of $0.61 per share, the company has a dividend yield of 2.3%. In comparison, the Banks - Northeast industry's yield is 2.03%, while the S&P 500's yield is 1.44%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.82 is up 1.2% from last year. Over the last 5 years, First Mid-Illinois Bancshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.61%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First Mid-Illinois's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FMBH for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.77 per share, with earnings expected to increase 2.59% 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.

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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that FMBH is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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