Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
1st Source in Focus
1st Source (SRCE - Free Report) is headquartered in South Bend, and is in the Finance sector. The stock has seen a price change of -4.59% since the start of the year. The holding company for 1st Source Bank is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 2.34% compared to the Banks - Midwest industry's yield of 2.32% and the S&P 500's yield of 1.75%.
In terms of dividend growth, the company's current annualized dividend of $1.16 is up 5.5% from last year. 1st Source has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 13.49%. 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. 1st Source's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SRCE expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $3.64 per share, which represents a year-over-year growth rate of 1.96%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, SRCE 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).