All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
TowneBank in Focus
Headquartered in Portsmouth, TowneBank (TOWN - Free Report) is a Finance stock that has seen a price change of 4.72% so far this year. The community bank is currently shelling out a dividend of $0.16 per share, with a dividend yield of 2.55%. This compares to the Banks - Southeast industry's yield of 1.75% and the S&P 500's yield of 1.94%.
In terms of dividend growth, the company's current annualized dividend of $0.64 is up 3.2% from last year. Over the last 5 years, TowneBank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.09%. 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. TowneBank's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TOWN expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.15 per share, representing a year-over-year earnings growth rate of 8.59%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TOWN 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).