Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Sandy Spring Bancorp in Focus
Sandy Spring Bancorp (SASR - Free Report) is headquartered in Olney, and is in the Finance sector. The stock has seen a price change of 7.56% since the start of the year. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 3.56%. In comparison, the Banks - Northeast industry's yield is 1.86%, while the S&P 500's yield is 1.9%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 9.1% from last year. In the past five-year period, Sandy Spring Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.73%. 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. Sandy Spring Bancorp's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
SASR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.24 per share, representing a year-over-year earnings growth rate of 13.29%.
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.
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 have to be mindful 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 SASR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).