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.
Farmers National Banc in Focus
Based in Canfield, Farmers National Banc (FMNB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 8.79%. The bank is currently shelling out a dividend of $0.09 per share, with a dividend yield of 2.6%. This compares to the Banks - Midwest industry's yield of 2.62% and the S&P 500's yield of 2.04%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.36 is up 20% from last year. Farmers National Banc has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 29.31%. 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. Farmers National's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FMNB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.26 per share, which represents a year-over-year growth rate of 9.57%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FMNB presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).