Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Stock Yards Bancorp in Focus
Based in Louisville, Stock Yards Bancorp (SYBT - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 15%. The holding company for Stock Yards Bank & Trust Co. Is currently shelling out a dividend of $2.37 per share, with a dividend yield of 43%. This compares to the Banks - Southeast industry's yield of 25.13% and the S&P 500's yield of 0.23%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.48 is up 11.7% from last year. Stock Yards Bancorp has increased its dividend 15 times on a year-over-year basis over the last 5 years for an average annual increase of 5%. 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, Stock Yards's payout ratio is 2.92%, which means it paid out 2.92% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SYBT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $0.92 per share, with earnings expected to increase 2.46% 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. But, not every company offers 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. 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 SYBT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).