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Why Essa Bancorp (ESSA) is a Top Dividend Stock for Your Portfolio

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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 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 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.

Essa Bancorp in Focus

Headquartered in Stroudsburg, Essa Bancorp (ESSA - Free Report) is a Finance stock that has seen a price change of -3.06% so far this year. The bank is currently shelling out a dividend of $0.15 per share, with a dividend yield of 3.57%. This compares to the Financial - Savings and Loan industry's yield of 2.61% and the S&P 500's yield of 1.76%.

Looking at dividend growth, the company's current annualized dividend of $0.60 is up 27.7% from last year. Over the last 5 years, Essa Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 7.78%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Essa Bancorp's current payout ratio is 27%, meaning it paid out 27% of its trailing 12-month EPS as dividend.

ESSA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $1.82 per share, representing a year-over-year earnings growth rate of 10.30%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. Income investors have to be mindful 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 ESSA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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