Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
First Defiance Financial in Focus
First Defiance Financial (FDEF - Free Report) is headquartered in Defiance, and is in the Finance sector. The stock has seen a price change of 19.87% since the start of the year. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 2.59%. In comparison, the Financial - Savings and Loan industry's yield is 2.24%, while the S&P 500's yield is 1.92%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.76 is up 18.8% from last year. Over the last 5 years, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.91%. 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%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FDEF expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.32 per share, representing a year-over-year earnings growth rate of 4.04%.
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.
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, 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).