All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
German American Bancorp in Focus
Headquartered in Jasper, German American Bancorp (GABC - Free Report) is a Finance stock that has seen a price change of 2.41% so far this year. The financial services holding company is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.39%. This compares to the Banks - Midwest industry's yield of 2.62% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $0.68 is up 13.3% from last year. Over the last 5 years, German American Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.20%. 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. Right now, German American Bancorp's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GABC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.39 per share, with earnings expected to increase 11.68% 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. 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 GABC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).