All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Mid Penn Bancorp in Focus
Headquartered in Millersburg, Mid Penn Bancorp (MPB - Free Report) is a Finance stock that has seen a price change of 10.34% so far this year. The company is paying out a dividend of $0.18 per share at the moment, with a dividend yield of 2.83% compared to the Banks - Northeast industry's yield of 1.89% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.72 is up 60% from last year. Over the last 5 years, Mid Penn Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.64%. 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. Mid Penn Bancorp's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MPB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.20 per share, which represents a year-over-year growth rate of 7.32%.
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.
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 have to be mindful 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 MPB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).