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.
First Midwest Bancorp in Focus
First Midwest Bancorp (FMBI - Free Report) is headquartered in Chicago, and is in the Finance sector. The stock has seen a price change of 1.46% since the start of the year. The holding company for First Midwest Bank is currently shelling out a dividend of $0.12 per share, with a dividend yield of 2.39%. This compares to the Banks - Midwest industry's yield of 2.44% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.48 is up 6.7% from last year. Over the last 5 years, First Midwest Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 8.26%. 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. First Midwest Bancorp's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
FMBI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.96 per share, representing a year-over-year earnings growth rate of 17.37%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FMBI 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).