Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
German American Bancorp in Focus
Based in Jasper, German American Bancorp (GABC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 4.93%. The financial services holding company is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.33%. This compares to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.68 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. German American Bancorp's current payout ratio is 31%, meaning 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 $2.37 per share, with earnings expected to increase 10.75% 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. But, not every company offers 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, GABC 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).