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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Provident Financial in Focus
Provident Financial (PFS - Free Report) is headquartered in Jersey City, and is in the Finance sector. The stock has seen a price change of 12.85% since the start of the year. The holding company for The Provident Bank is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.38%. This compares to the Financial - Savings and Loan industry's yield of 2.2% and the S&P 500's yield of 1.89%.
In terms of dividend growth, the company's current annualized dividend of $0.92 is up 12.2% from last year. In the past five-year period, Provident Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.82%. 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, Provident Financial's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PFS for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.92 per share, representing a year-over-year earnings growth rate of 5.49%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PFS 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).