Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
MutualFirst Financial in Focus
Headquartered in Muncie, MutualFirst Financial (MFSF - Free Report) is a Finance stock that has seen a price change of 12.68% so far this year. Currently paying a dividend of $0.2 per share, the company has a dividend yield of 2.67%. In comparison, the Financial - Savings and Loan industry's yield is 2.25%, while the S&P 500's yield is 1.87%.
Looking at dividend growth, the company's current annualized dividend of $0.80 is up 8.1% from last year. Over the last 5 years, MutualFirst Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.20%. 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. MutualFirst Financial's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MFSF expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.60 per share, with earnings expected to increase 7% from the year ago period.
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. 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 MFSF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).