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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Commonwealth Financial in Focus
Based in Indiana, First Commonwealth Financial (FCF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 12.75%. Currently paying a dividend of $0.1 per share, the company has a dividend yield of 2.94%. In comparison, the Banks - Northeast industry's yield is 1.67%, while the S&P 500's yield is 1.94%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.40 is up 14.3% from last year. Over the last 5 years, First Commonwealth Financial has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.83%. 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. Right now, First Commonwealth Financial's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
FCF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.10 per share, representing a year-over-year earnings growth rate of 0.23%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 FCF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).