Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 Business Financial Services in Focus
First Business Financial Services (FBIZ - Free Report) is headquartered in Madison, and is in the Finance sector. The stock has seen a price change of 6.66% since the start of the year. The bank holding company for First Business Bank and First Business Bank-Milwaukee is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.88% compared to the Banks - Midwest industry's yield of 2.32% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.60 is up 7.1% from last year. In the past five-year period, First Business Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.84%. 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. Right now, First Business Financial Services's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FBIZ for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.05 per share, which represents a year-over-year growth rate of 10.22%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FBIZ 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).