All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Chemical Financial in Focus
Chemical Financial is headquartered in Midland, and is in the Finance sector. The stock has seen a price change of 11.99% since the start of the year. The financial holding company is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.32%. This compares to the Banks - Midwest industry's yield of 2.49% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1.36 is up 9.7% from last year. Chemical Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.86%. 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. Chemical Financial's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CHFC for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.23 per share, with earnings expected to increase 7.36% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CHFC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).