Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
1st Source in Focus
1st Source (SRCE - Free Report) is headquartered in South Bend, and is in the Finance sector. The stock has seen a price change of 9.1% since the start of the year. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 2.45%. In comparison, the Banks - Midwest industry's yield is 2.54%, while the S&P 500's yield is 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.08 is up 12.5% from last year. Over the last 5 years, 1st Source has increased its dividend 4 times on a year-over-year basis for an average annual increase of 11.80%. 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. Right now, 1st Source's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SRCE expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.55 per share, representing a year-over-year earnings growth rate of 12.34%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 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).