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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Boston Private Financial in Focus
Headquartered in Boston, Boston Private Financial (BPFH - Free Report) is a Finance stock that has seen a price change of -12.49% so far this year. The bank holding company is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.55%. This compares to the Banks - Northeast industry's yield of 1.5% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $0.48 is up 9.1% from last year. Over the last 5 years, Boston Private Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.07%. 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. Boston Private Financial's current payout ratio is 54%. This means it paid out 54% of its trailing 12-month EPS as dividend.
BPFH is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $0.95 per share, representing a year-over-year earnings growth rate of 7.95%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 BPFH is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).