Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
First Interstate BancSystem in Focus
Based in Billings, First Interstate BancSystem (FIBK - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 9.79%. The holding company for First Interstate Bank is currently shelling out a dividend of $0.31 per share, with a dividend yield of 3.09%. This compares to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.24 is up 10.7% from last year. Over the last 5 years, First Interstate BancSystem has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.24%. 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. Right now, First Interstate BancSystem's payout ratio is 42%, which means it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FIBK expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.09 per share, representing a year-over-year earnings growth rate of 12.36%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FIBK 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).