All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
American National Bankshares in Focus
Based in Danville, American National Bankshares (AMNB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -1.78%. The bank holding company is currently shelling out a dividend of $0.25 per share, with a dividend yield of 2.66%. This compares to the Banks - Southeast industry's yield of 1.35% and the S&P 500's yield of 1.82%.
In terms of dividend growth, the company's current annualized dividend of $1 is up 3.1% from last year. American National Bankshares has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 2.04%. 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. American National Bankshares's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AMNB expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.73 per share, with earnings expected to increase 31.88% 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. But, not every company offers 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, AMNB 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).