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 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.
Heritage Commerce in Focus
Heritage Commerce (HTBK - Free Report) is headquartered in San Jose, and is in the Finance sector. The stock has seen a price change of 6.97% since the start of the year. The holding company for Heritage Bank of Commerce is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.96%. This compares to the Banks - West industry's yield of 1.95% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.48 is up 9.1% from last year. In the past five-year period, Heritage Commerce has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.70%. 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. Heritage Commerce's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
HTBK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.16 per share, which represents a year-over-year growth rate of 9.43%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. That said, they can take comfort from the fact that HTBK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).