Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Bryn Mawr Bank in Focus
Bryn Mawr Bank (BMTC - Free Report) is headquartered in Bryn Mawr, and is in the Finance sector. The stock has seen a price change of 9.84% since the start of the year. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 2.06%. In comparison, the Banks - Northeast industry's yield is 1.52%, while the S&P 500's yield is 1.77%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 16.3% from last year. Bryn Mawr Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.29%. 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. Bryn Mawr Bank's current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.
BMTC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.13 per share, with earnings expected to increase 29.34% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 must be conscious 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 BMTC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).