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.
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.
First Defiance Financial in Focus
Based in Defiance, First Defiance Financial (FDEF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 13.02%. The holding company for First Federal Bank of the Midwest is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 2.74% compared to the Financial - Savings and Loan industry's yield of 2.29% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $0.76 is up 18.8% from last year. First Defiance Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 18.91%. 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. First Defiance's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
FDEF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.37 per share, with earnings expected to increase 6.28% 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FDEF 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).