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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
1st Source in Focus
Headquartered in South Bend, 1st Source (SRCE - Free Report) is a Finance stock that has seen a price change of 15.07% so far this year. The holding company for 1st Source Bank is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 2.33% compared to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.08 is up 12.5% from last year. In the past five-year period, 1st Source has increased its dividend 4 times on a year-over-year basis for an average annual increase of 11.80%. 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. 1st Source's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
SRCE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.55 per share, which represents a year-over-year growth rate of 12.34%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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, SRCE 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).