Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
First Defiance Financial in Focus
Based in Defiance, First Defiance Financial (FDEF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 18.93%. The holding company for First Federal Bank of the Midwest is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.33%. This compares to the Financial - Savings and Loan industry's yield of 2.16% and the S&P 500's yield of 1.98%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 6.3% from last year. First Defiance Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 18.16%. 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. First Defiance's current payout ratio is 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FDEF for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.32 per share, with earnings expected to increase 4.04% 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. 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 FDEF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).