All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Simmons First National in Focus
Headquartered in Pine Bluff, Simmons First National (SFNC - Free Report) is a Finance stock that has seen a price change of 3.52% so far this year. The bank holding company is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 2.56% compared to the Banks - Southeast industry's yield of 1.85% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.64 is up 6.7% from last year. Simmons First National has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.43%. 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, Simmons First National's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SFNC for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.46 per share, representing a year-over-year earnings growth rate of 3.80%.
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.
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 SFNC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).