Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
German American Bancorp in Focus
German American Bancorp (GABC - Free Report) is headquartered in Jasper, and is in the Finance sector. The stock has seen a price change of 7.6% since the start of the year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.28%. In comparison, the Banks - Midwest industry's yield is 2.3%, while the S&P 500's yield is 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.68 is up 13.3% from last year. Over the last 5 years, German American Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.20%. 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. German American Bancorp's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GABC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.31 per share, with earnings expected to increase 7.94% from the year ago period.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that GABC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).