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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
NBT Bancorp in Focus
Headquartered in Norwich, NBT Bancorp (NBTB - Free Report) is a Finance stock that has seen a price change of 10.9% so far this year. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 2.45%. In comparison, the Banks - Northeast industry's yield is 1.55%, while the S&P 500's yield is 1.76%.
Taking a look at the company's dividend growth, its current annualized dividend of $1 is up 8.7% from last year. NBT Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 3.37%. 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, NBT's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
NBTB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.53 per share, which represents a year-over-year growth rate of 28.43%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. 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 NBTB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).