Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
MidWestOne in Focus
Headquartered in Iowa City, MidWestOne (MOFG - Free Report) is a Finance stock that has seen a price change of 24.49% so far this year. Currently paying a dividend of $0.2 per share, the company has a dividend yield of 2.62%. In comparison, the Banks - Midwest industry's yield is 2.45%, while the S&P 500's yield is 1.9%.
In terms of dividend growth, the company's current annualized dividend of $0.81 is up 3.8% from last year. MidWestOne has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.10%. 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, MidWestOne's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MOFG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.06 per share, which represents a year-over-year growth rate of 20.47%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MOFG is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).