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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
BankFinancial in Focus
Based in Burr Ridge, BankFinancial (BFIN - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -9.57%. The bank holding company is paying out a dividend of $0.1 per share at the moment, with a dividend yield of 2.96% compared to the Financial - Savings and Loan industry's yield of 2.28% and the S&P 500's yield of 1.87%.
In terms of dividend growth, the company's current annualized dividend of $0.40 is up 8.1% from last year. Over the last 5 years, BankFinancial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 34.21%. 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, BankFinancial's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BFIN for this fiscal year. The Zacks Consensus Estimate for 2019 is $0.98 per share, representing a year-over-year earnings growth rate of 13.95%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BFIN 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).