Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.
MidWestOne in Focus
Headquartered in Iowa City, MidWestOne (MOFG - Free Report) is a Finance stock that has seen a price change of 16.67% so far this year. The holding company for MidWestOne Bank is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.8%. This compares to the Banks - Midwest industry's yield of 2.65% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $0.81 is up 3.8% from last year. In the past five-year period, MidWestOne has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.96%. 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. MidWestOne's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MOFG for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.07 per share, which represents a year-over-year growth rate of 20.87%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 MOFG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).