Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Financial Institutions in Focus
Headquartered in Warsaw, Financial Institutions (FISI - Free Report) is a Finance stock that has seen a price change of 10.51% so far this year. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 3.52%. In comparison, the Banks - Northeast industry's yield is 1.73%, while the S&P 500's yield is 1.89%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 4.2% from last year. Financial Institutions has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.54%. 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. Right now, Financial Institutions's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FISI for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.62 per share, which represents a year-over-year growth rate of 1.95%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FISI 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).