All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
MidWestOne in Focus
Headquartered in Iowa City, MidWestOne (MOFG - Free Report) is a Finance stock that has seen a price change of -0.03% so far this year. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 2.33%. In comparison, the Banks - Midwest industry's yield is 2.07%, while the S&P 500's yield is 1.89%.
Looking at dividend growth, the company's current annualized dividend of $0.78 is up 16.4% from last year. Over the last 5 years, MidWestOne has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.42%. 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. MidWestOne's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MOFG expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.67 per share, which represents a year-over-year growth rate of 47.51%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious 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 MOFG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).