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.
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.
First Commonwealth Financial in Focus
Based in Indiana, First Commonwealth Financial (FCF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 19.48%. The financial holding company is currently shelling out a dividend of $0.09 per share, with a dividend yield of 2.1%. This compares to the Banks - Northeast industry's yield of 1.52% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.36 is up 12.5% from last year. Over the last 5 years, First Commonwealth Financial has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.88%. 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. Right now, First Commonwealth Financial's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FCF for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.07 per share, representing a year-over-year earnings growth rate of 30.49%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. That said, they can take comfort from the fact that FCF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).