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.
Simmons First National in Focus
Headquartered in Pine Bluff, Simmons First National (SFNC - Free Report) is a Finance stock that has seen a price change of 5.39% so far this year. The bank holding company is currently shelling out a dividend of $0.15 per share, with a dividend yield of 2.52%. This compares to the Banks - Southeast industry's yield of 1.62% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $0.64 is up 6.7% from last year. Over the last 5 years, Simmons First National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.01%. 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, Simmons First National's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
SFNC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.46 per share, which represents a year-over-year growth rate of 3.80%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SFNC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).