Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Commonwealth Financial in Focus
Based in Indiana, First Commonwealth Financial (FCF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 12.78%. The financial holding company is currently shelling out a dividend of $0.09 per share, with a dividend yield of 2.23%. This compares to the Banks - Northeast industry's yield of 1.47% and the S&P 500's yield of 1.77%.
In terms of dividend growth, the company's current annualized dividend of $0.36 is up 12.5% from last year. In the past five-year period, First Commonwealth Financial has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.88%. 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, First Commonwealth Financial's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FCF for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.06 per share, which represents a year-over-year growth rate of 29.27%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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 FCF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).