Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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.
TowneBank in Focus
TowneBank (TOWN - Free Report) is headquartered in Portsmouth, and is in the Finance sector. The stock has seen a price change of 16.4% since the start of the year. The community bank is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.01% compared to the Banks - Southeast industry's yield of 30.77% and the S&P 500's yield of 0.16%.
Looking at dividend growth, the company's current annualized dividend of $2.32 is up 9% from last year. TowneBank has increased its dividend 14.30 times on a year-over-year basis over the last 5 years for an average annual increase of 5%. 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. Right now, TowneBank's payout ratio is 2.60%, which means it paid out 2.60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TOWN expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $0.64 per share, with earnings expected to increase 2.20% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. With that in mind, TOWN 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).