Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Investors Bancorp in Focus
Based in Short Hills, Investors Bancorp is in the Finance sector, and so far this year, shares have seen a price change of 46.21%. The holding company for Investors Bank is currently shelling out a dividend of $0.14 per share, with a dividend yield of 3.63%. This compares to the Financial - Savings and Loan industry's yield of 2.49% and the S&P 500's yield of 1.42%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.56 is up 16.7% from last year. In the past five-year period, Investors Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.19%. 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. Investors Bancorp's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ISBC for this fiscal year. The Zacks Consensus Estimate for 2021 is $1.25 per share, representing a year-over-year earnings growth rate of 32.98%.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ISBC 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).