Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Bryn Mawr Bank in Focus
Based in Bryn Mawr, Bryn Mawr Bank is in the Finance sector, and so far this year, shares have seen a price change of 36%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.69%. In comparison, the Banks - Northeast industry's yield is 2.09%, while the S&P 500's yield is 1.41%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 5.7% from last year. Bryn Mawr Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.66%. 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. Bryn Mawr Bank's current payout ratio is 32%. This means it paid out 32% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMTC expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $2.76 per share, with earnings expected to increase 68.29% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, BMTC 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).