Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
NBT Bancorp in Focus
NBT Bancorp (NBTB - Free Report) is headquartered in Norwich, and is in the Finance sector. The stock has seen a price change of 8.7% since the start of the year. The financial holding company is currently shelling out a dividend of $2.51 per share, with a dividend yield of 44%. This compares to the Banks - Northeast industry's yield of 28.43% and the S&P 500's yield of 0.25%.
Looking at dividend growth, the company's current annualized dividend of $3.05 is up 3.4% from last year. Over the last 5 years, NBT Bancorp has increased its dividend 8.70 times on a year-over-year basis for an average annual increase of 4%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, NBT's payout ratio is 8.21%, which means it paid out 8.21% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NBTB expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1 per share, representing a year-over-year earnings growth rate of 2.65%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, NBTB 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).