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 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 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 22.68%. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 2.53%. In comparison, the Financial - Savings and Loan industry's yield is 2.18%, while the S&P 500's yield is 1.94%.
In terms of dividend growth, the company's current annualized dividend of $0.76 is up 18.8% from last year. In the past five-year period, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.16%. 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. Right now, First Defiance's payout ratio is 31%, which 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 a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. 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 FDEF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).