Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Northfield Bancorp in Focus
Headquartered in Woodbridge, Northfield Bancorp (NFBK - Free Report) is a Finance stock that has seen a price change of 18.67% so far this year. Currently paying a dividend of $0.11 per share, the company has a dividend yield of 2.74%. In comparison, the Financial - Savings and Loan industry's yield is 2.34%, while the S&P 500's yield is 1.87%.
Looking at dividend growth, the company's current annualized dividend of $0.44 is up 10% from last year. Over the last 5 years, Northfield Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.86%. 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. Northfield's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NFBK for this fiscal year. The Zacks Consensus Estimate for 2019 is $0.77 per share, with earnings expected to increase 1.32% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. That said, they can take comfort from the fact that NFBK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).