Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 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.
Union Bankshares in Focus
Headquartered in Richmond, Union Bankshares is a Finance stock that has seen a price change of 33.83% so far this year. The holding company for Union First Market Bank is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 2.44% compared to the Banks - Southeast industry's yield of 1.73% and the S&P 500's yield of 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.92 is up 4.5% from last year. Union Bankshares has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.28%. 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. Union Bankshares's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, UBSH expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.84 per share, with earnings expected to increase 4.80% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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, UBSH 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).