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 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.
Park National in Focus
Based in Newark, Park National (PRK - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 1.85%. The financial services holding company is currently shelling out a dividend of $0.96 per share, with a dividend yield of 3.63%. This compares to the Banks - Midwest industry's yield of 2.01% and the S&P 500's yield of 1.83%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.84 is up 36.2% from last year. Park National has increased its dividend 1 times on a year-over-year basis over the last 5 years for an average annual increase of 0.23%. 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. Park National's current payout ratio is 57%. This means it paid out 57% of its trailing 12-month EPS as dividend.
PRK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $7.15 per share, with earnings expected to increase 30.71% 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.
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 have to be mindful 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 PRK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).