All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.
Northwest Bancshares in Focus
Based in Warren, Northwest Bancshares (NWBI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 6.75%. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 3.81%. In comparison, the Financial - Savings and Loan industry's yield is 1.82%, while the S&P 500's yield is 1.78%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 6.3% from last year. Over the last 5 years, Northwest Bancshares has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.43%. 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. Northwest Bancshares's current payout ratio is 72%. This means it paid out 72% of its trailing 12-month EPS as dividend.
NWBI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.02 per share, which represents a year-over-year growth rate of 21.43%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. 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 NWBI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).