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.

Cash flow can come from bond interest, interest from other types of investments, and of course, 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.

First Mid Bancshares in Focus

First Mid Bancshares (FMBH Quick QuoteFMBH - Free Report) is headquartered in Mattoon, and is in the Finance sector. The stock has seen a price change of -1.9% since the start of the year. The bank holding company is currently shelling out a dividend of $0.24 per share, with a dividend yield of 2.66%. This compares to the Banks - Northeast industry's yield of 2.86% and the S&P 500's yield of 1.53%.

In terms of dividend growth, the company's current annualized dividend of $0.96 is up 2.1% from last year. In the past five-year period, First Mid Bancshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.91%. 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. First Mid Bancshares's current payout ratio is 27%, meaning it paid out 27% of its trailing 12-month EPS as dividend.

FMBH is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $3.69 per share, representing a year-over-year earnings growth rate of 6.03%.

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.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, FMBH 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).