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.
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.
Stock Yards Bancorp in Focus
Headquartered in Louisville, Stock Yards Bancorp (SYBT - Free Report) is a Finance stock that has seen a price change of 4.66% so far this year. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 2.91%. In comparison, the Banks - Southeast industry's yield is 1.77%, while the S&P 500's yield is 1.97%.
In terms of dividend growth, the company's current annualized dividend of $1 is up 4.2% from last year. Over the last 5 years, Stock Yards Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13%. 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, Stock Yards's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SYBT for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.57 per share, which represents a year-over-year growth rate of 6.20%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SYBT 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).