All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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
Headquartered in Jasper, German American Bancorp (GABC - Free Report) is a Finance stock that has seen a price change of 7.89% so far this year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.27%. In comparison, the Banks - Midwest industry's yield is 2.43%, while the S&P 500's yield is 1.87%.
Looking at dividend growth, the company's current annualized dividend of $0.68 is up 13.3% from last year. German American Bancorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.20%. 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, German American Bancorp's payout ratio is 30%, which means 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 $2.34 per share, representing a year-over-year earnings growth rate of 9.35%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that GABC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).