Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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
Based in Pine Bluff, Simmons First National (SFNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 7.09%. The bank holding company is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 2.48% compared to the Banks - Southeast industry's yield of 1.73% and the S&P 500's yield of 1.89%.
In terms of dividend growth, the company's current annualized dividend of $0.64 is up 6.7% from last year. Simmons First National has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.84%. 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. Simmons First National's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SFNC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.46 per share, representing a year-over-year earnings growth rate of 3.80%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SFNC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).