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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Mid Penn Bancorp in Focus
Headquartered in Millersburg, Mid Penn Bancorp (MPB - Free Report) is a Finance stock that has seen a price change of 9.56% so far this year. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 2.38%. In comparison, the Banks - Northeast industry's yield is 1.72%, while the S&P 500's yield is 1.87%.
In terms of dividend growth, the company's current annualized dividend of $0.60 is up 33.3% from last year. In the past five-year period, Mid Penn Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.64%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Mid Penn Bancorp's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MPB for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.20 per share, representing a year-over-year earnings growth rate of 7.32%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. 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, MPB 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).