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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Northrim BanCorp in Focus
Northrim BanCorp (NRIM - Free Report) is headquartered in Anchorage, and is in the Finance sector. The stock has seen a price change of 30.28% since the start of the year. The holding company for Northrim Bank is currently shelling out a dividend of $0.24 per share, with a dividend yield of 2.18%. This compares to the Banks - West industry's yield of 1.4% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 11.6% from last year. In the past five-year period, Northrim BanCorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.48%. 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. Northrim's current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NRIM expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.85 per share, with earnings expected to increase 39.71% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 NRIM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).