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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Financial Institutions in Focus
Headquartered in Warsaw, Financial Institutions (FISI - Free Report) is a Finance stock that has seen a price change of 12.76% so far this year. The holding company for Five Star Bank is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 3.45% compared to the Banks - Northeast industry's yield of 1.7% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $1 is up 4.2% from last year. Financial Institutions has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.09%. 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. Financial Institutions's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FISI for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.62 per share, representing a year-over-year earnings growth rate of 1.95%.
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 FISI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).