All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Farmers National Banc in Focus
Based in Canfield, Farmers National Banc (FMNB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 5.89%. The bank is currently shelling out a dividend of $0.09 per share, with a dividend yield of 2.67%. This compares to the Banks - Midwest industry's yield of 2.65% and the S&P 500's yield of 1.92%.
Looking at dividend growth, the company's current annualized dividend of $0.36 is up 20% from last year. Farmers National Banc has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 30.97%. 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. Farmers National's current payout ratio is 30%. This means it paid out 30% of its trailing 12-month EPS as dividend.
FMNB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.26 per share, with earnings expected to increase 9.57% from the year ago period.
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.
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 FMNB is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).