All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Sierra Bancorp in Focus
Based in Porterville, Sierra Bancorp (BSRR - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 6.7%. The parent company of Bank of the Sierra is paying out a dividend of $0.18 per share at the moment, with a dividend yield of 2.81% compared to the Banks - West industry's yield of 1.98% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $0.72 is up 12.5% from last year. Sierra Bancorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 16.29%. 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. Sierra Bancorp's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BSRR for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.25 per share, which represents a year-over-year growth rate of 17.19%.
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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that BSRR is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).