Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
First Business Financial Services in Focus
First Business Financial Services (FBIZ - Free Report) is headquartered in Madison, and is in the Finance sector. The stock has seen a price change of 9.33% since the start of the year. The bank holding company for First Business Bank and First Business Bank-Milwaukee is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.81% compared to the Banks - Midwest industry's yield of 2.26% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $0.60 is up 7.1% from last year. Over the last 5 years, First Business Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.41%. 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. First Business Financial Services's current payout ratio is 30%. This means it paid out 30% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FBIZ for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.05 per share, which represents a year-over-year growth rate of 10.22%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FBIZ presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).