Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
1st Source in Focus
Headquartered in South Bend, 1st Source (SRCE - Free Report) is a Finance stock that has seen a price change of 12.72% so far this year. The holding company for 1st Source Bank is currently shelling out a dividend of $0.27 per share, with a dividend yield of 2.38%. This compares to the Banks - Midwest industry's yield of 2.56% and the S&P 500's yield of 1.99%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 12.5% from last year. Over the last 5 years, 1st Source has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.69%. 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. Right now, 1st Source's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SRCE for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.55 per share, with earnings expected to increase 12.34% from the year ago period.
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.
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. Income investors have to be mindful 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 SRCE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).