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This is Why Summit Financial (SMMF) is a Great Dividend Stock

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Summit Financial in Focus

Headquartered in Moorefield, Summit Financial (SMMF - Free Report) is a Finance stock that has seen a price change of 9.8% so far this year. The financial holding company is currently shelling out a dividend of $0.18 per share, with a dividend yield of 2.39%. This compares to the Banks - Southeast industry's yield of 2.11% and the S&P 500's yield of 1.61%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.72 is up 2.9% from last year. In the past five-year period, Summit Financial has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.78%. 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. Right now, Summit Financial's payout ratio is 20%, which means it paid out 20% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SMMF for this fiscal year. The Zacks Consensus Estimate for 2022 is $4.01 per share, which represents a year-over-year growth rate of 15.56%.

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. 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 SMMF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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