Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Financial Institutions in Focus
Based in Warsaw, Financial Institutions (FISI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 14.24%. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 3.41%. In comparison, the Banks - Northeast industry's yield is 1.84%, while the S&P 500's yield is 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 4.2% from last year. Financial Institutions has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.82%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Financial Institutions's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FISI for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.76 per share, which represents a year-over-year growth rate of 7.39%.
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. 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, FISI presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).