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.
Lakeland Bancorp in Focus
Headquartered in Oak Ridge, Lakeland Bancorp (LBAI - Free Report) is a Finance stock that has seen a price change of 5.6% so far this year. The bank holding company is currently shelling out a dividend of $0.13 per share, with a dividend yield of 3.2%. This compares to the Banks - Northeast industry's yield of 1.93% and the S&P 500's yield of 1.96%.
In terms of dividend growth, the company's current annualized dividend of $0.50 is up 12.4% from last year. In the past five-year period, Lakeland Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.60%. 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, Lakeland Bancorp's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LBAI for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.43 per share, representing a year-over-year earnings growth rate of 6.72%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. That said, they can take comfort from the fact that LBAI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).