Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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.
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. Over the last 5 years, Park National has increased its dividend 1 times on a year-over-year basis for an average annual increase of 0.23%. 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. Park National's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PRK for this fiscal year. The Zacks Consensus Estimate for 2018 is $7.15 per share, representing a year-over-year earnings growth rate of 30.71%.
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. 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 PRK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).