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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Lakeland Financial in Focus
Headquartered in Warsaw, Lakeland Financial (LKFN - Free Report) is a Finance stock that has seen a price change of 2.91% so far this year. The holding company for Lake City Bank is currently shelling out a dividend of $0.26 per share, with a dividend yield of 2.08%. This compares to the Banks - Midwest industry's yield of 1.88% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $1.04 is up 22.4% from last year. In the past five-year period, Lakeland Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.58%. 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, Lakeland Financial's payout ratio is 35%, which means it paid out 35% of its trailing 12-month EPS as dividend.
LKFN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3 per share, which represents a year-over-year growth rate of 25.52%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 LKFN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).