Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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 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 15.26%. The holding company for First Federal Bank of the Midwest is currently shelling out a dividend of $0.19 per share, with a dividend yield of 2.69%. This compares to the Financial - Savings and Loan industry's yield of 2.25% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its 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. First Defiance's current payout ratio is 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.
FDEF is expecting earnings to expand this fiscal year as well. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FDEF 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).