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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
First Defiance Financial in Focus
Headquartered in Defiance, First Defiance Financial (FDEF - Free Report) is a Finance stock that has seen a price change of 22.84% so far this year. The holding company for First Federal Bank of the Midwest is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.13%. This compares to the Financial - Savings and Loan industry's yield of 1.75% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.68 is up 36% from last year. Over the last 5 years, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21.64%. 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 Defiance's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
FDEF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.21 per share, which represents a year-over-year growth rate of 25.57%.
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. With that in mind, FDEF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).